Fitch: Anthem Block of Cigna Buy Wouldn't Likely Hurt Ratings
We believe that ANTM's competitive position in its key employer group market and key financial metrics would remain supportive of the company's current ratings; even in a potentially more concentrated and competitive marketplace and notwithstanding a $1.85 billion termination fee, ANTM could be obligated to pay CI if the merger fails to receive necessary regulatory approvals. ANTM has a long-term IDR of 'BBB+' and is on Negative Rating Watch.
The WSJ Monday reported that regulators "privately expressed concerns" about the merger and "are skeptical that the health insurers can offer concessions that would fully preserve competition in the industry."
ANTM's ratings are sensitive to the closure of the planned acquisition of CI, final financing terms and terms of regulatory approvals, including the extent of any required divestitures. Materially higher than expected financing costs or adverse divestiture requirements could result in a one-notch downgrade.
If ANTM accesses the debt markets to partially fund the planned acquisition, the acquisition will likely be completed and the terms of its financing will be known. Should this occur, Fitch intends to affirm ANTM's ratings and assign a Negative Rating Outlook. A greater clarity concerning the significance of any potential divestitures needed to obtain regulatory approval should be known at that time.
ANTM's ratings were placed on Rating Watch Negative on July 24, 2015 following the company's announcement that it had entered into an agreement to acquire CI in exchange for approximately $26 billion in cash and $18 billion of ANTM's common shares (based on ANTM's current share price). The Negative Watch on ANTM's ratings was maintained on May 27, 2016.
Longer term, assuming the acquisition proceeds and ratings are affirmed, ANTM's ratings could be downgraded if the company fails to demonstrate progress toward de-leveraging or fails to generate anticipated earnings benefits from the acquisition.