Coverage: Cigna/Express Scripts deal backed by advisors

Proxy advisor Institutional Shareholder Services recommends shareholders approve health insurer Cigna’s acquisition of Express Scripts, days after famed activist investor Carl Icahn called the deal a “folly.”

Angelica LaVito of CNBC.com had the news:

ISS acknowledged potential regulatory and competitive risks to Express Scripts, but said the potential benefits of the $54 billion deal outweigh them. The proxy advisor called the combination financially compelling, and one that would give the combined company immediate scale with strong cash flow generation.

Primary, ISS said, Cigna’s “credible management team” has laid out “sound strategic rationale.”

Shares of Cigna slid about 1 percent Friday. The stock has now shed nearly 10 percent this year. Meanwhile, shares of Express Scripts rose more than 2 percent, and are up more than 12 percent since January.

Cigna says it and Express Scripts are complementary businesses that when combined can improve care for patients and lower health-care costs. The deal has come under attack from Icahn, who published a searing letter titled “Cigna’s $60 billion folly,” in which Icahn said buying the company “may well become one of the worst blunders in corporate history.”

Scott Deveau and Zachary Tracer of Bloomberg News reported that another investor has backed the deal:

Another shareholder, Glenview Capital Management, which is invested in both stocks, said Thursday that it supported the tie-up.

ISS said it believe the transaction would be “significantly accretive” to earnings in the year following closing. It noted Cigna’s management has said it expects to achieve earnings per share of between $20 and $21 a share in 2021 versus $18 a share on a standalone basis, and the deal will create $600 million in synergies.

“Considering these factors, and primarily the sound strategic rationale that has been laid out by a credible management team, shareholders are recommended to vote for this transaction,” ISS said.

Henry Fernandez of Fox Business reported that Icahn believes Express Scripts’ business will “melt away”:

The billionaire activist investor said he has seen too many companies such as Express Scripts “melt away” because he believes it doesn’t make prescription drugs affordable for Americans.

“This company, Scripts, I believe is in danger existentially. I don’t see the reason for it. I know it sounds a little arrogant of me to say it, but I don’t really see [it],” Icahn said on “The Intelligence Report.”

In March, Cigna agreed to pay an estimated $96.03 a share in cash and stock for Express Scripts. Icahn owns 1.36 million shares, or 0.56%, of Cigna.

The legendary investor called the potential deal “ridiculous” and “absurd.”