Cigna Corp

While the media caters to Millennial preferences, there’s one economic sector that’s shifting to a more seasoned crowd: healthcare stocks.

In Q3, billionaire investor Leon Cooperman’s top five holdings were Fiserv, Alphabet, United Continental, Chimera Investment, and Cigna.

On Thursday, the Trump administration announced the withdrawal of the proposal to abolish rebates paid to pharmacy benefit managers by drugmakers.

Analysts expect Cigna’s (CI) operating cash flows to be $8.01 billion, $9.08 billion, and $9.69 billion, respectively, in 2019, 2020, and 2021.

On its fourth-quarter earnings conference call, Cigna (CI) guided for a 2019 medical care ratio in the range of 80.5%–81.5%.

In its fourth-quarter earnings press release, Anthem (ANTM) guided for 2019 GAAP (generally accepted accounting principles) EPS of more than $18.00.

In its fourth-quarter earnings press release, Anthem (ANTM) guided for 2019 operating revenue of $100 billion, a YoY (year-over-year) rise of $8.7 billion.

On April 12, Anthem (ANTM) closed at $252.85, 8.48% lower than its previous closing price.

In Q4 2018, Third Point initiated a new position in Cigna (CI), which is an American healthcare services organization.

On November 29, United Health Group’s (UNH) stock price closed at $282.55, which is ~8% growth from its close of $261.62 on November 23.

UnitedHealth Group (UNH) released its Q3 2018 earnings today. UNH reported sales of $56.6 billion, up ~12.4% on a year-over-year basis.

UnitedHealth Group is a leading managed healthcare firm in the United States.

UnitedHealth Group (UNH) is one of the largest Fortune 500 companies.

As of September 24, ten of the 24 analysts covering UNH stock have given it a “strong buy” recommendation.

UnitedHealth Group (UNH) has announced that its board of directors has authorized a cash dividend of $0.90 per share.

Of the 23 analysts covering UNH stock, all of them have “buy” or “strong buy” recommendations for UnitedHealth Group.

UnitedHealth Group (UNH) stock registered its 52-week high of $270.17 last week on August 30.

Today, UnitedHealth Group (UNH) reported its earnings results for the second quarter of fiscal 2018. The company reported sales of $56.1 billion, up ~12% on a (year-over-year) basis.

Boston Scientific expects the results from its UNTOUCHED trial by 2020.

On April 17, UnitedHealth Group (UNH) reported its 1Q18 earnings results. UNH stock rose ~3.6% from its April 16 closing price.

In the second week of April 2018, St. Jude Children’s Research Hospital announced the launch of the St. Jude Cloud, which it described as the world’s largest public store of pediatric cancer genomics data.

UnitedHealth Group is, by revenue, the largest healthcare company in the world.

CNBC has reported that Walmart is looking to acquire PillPack, an online pharmacy startup, for less than $1 billion.

On March 14, 2018, UnitedHealth Group (UNH) ended trading at $225.38 per share.

On February 14, UnitedHealth Group authorized a quarterly dividend payment of $0.75 to shareholders of record on March 9, 2018.

Cigna (CI) has projected its expected annual revenue growth rate in the range of 6%–to 8% from 2017 to 2021, assuming completion of the Express Scripts acquisition.

Cigna (CI) expects the acquisition of Express Scripts to boost the EPS of the combined company in the double digits in the first full year.

On March 7, 2018, Cigna (CI) announced that it has entered into a definitive agreement to acquire Express Scripts (ESRX) for $67 billion.

Between November 22 and February 21, Universal Health Services stock has risen 19% to reach $117.

Amazon has joined forces with Berkshire Hathaway (BRK.A) and JPMorgan Chase (JPM) to create a not-for-profit healthcare company.

WellCare Health Plans has updated its earnings per share guidance from the previously estimated range of $6.00–$6.25 to the new range of $6.55–$6.80.

In 1Q17, WellCare Health Plans (WCG) reported revenues of ~$3.9 billion, which totals year-over-year growth of around 11.7%.

In 1Q17, around 12.1 million members were enrolled in Centene’s (CNC) various healthcare plans, which is a year-over-year (or YoY) rise of around 600,000 beneficiaries.

In 1Q17, UnitedHealth Group’s (UNH) UnitedHealthcare business witnessed a 2.5 million year-over-year increase in customers.

In 1Q17, UnitedHealth Group’s (UNH) Optum business reported $21.2 billion in revenues, which represents year-over-year growth of around 7.9%.

In 1Q17, UnitedHealth Group’s (UNH) OptumHealth segment served 6 million more people on a year-over-year basis.

The healthcare bill’s failure had a negative impact on investor sentiment for health insurance carriers.

In its bid to control healthcare costs, UnitedHealth Group’s (UNH) OptumRx segment has been actively deploying data analytics across its Optum platform.

UnitedHealth Group’s (UNH) Optum One is being used by about 700 hospitals and 7,000 medical clinics, which together cover about 140,000 healthcare providers.

Optum360, UnitedHealth Group’s (UNH) hospital revenue cycle management solution, is expected to reach $60.0 billion in billings for clients and partner organizations.

Wall Street analysts have projected UnitedHealth Group’s 2016 revenues to be about $183.9 billion, which is a YoY growth of 17.1%.

Arbitrageurs will certainly be interested in setting up the ARM Holdings (ARMH) spread, especially if they can get an 8% return using the ordinary shares.

ARM Holdings (ARMH) was trading at about $47 per share before the deal with Softbank was announced. The risk-reward ratio is about 12:1.

Softbank is paying a pretty penny for ARM Holdings (ARMH). The premium to the prevailing share price was in the low 40%.

Softbank decided to waive any antitrust or regulatory conditions to the transaction. It doesn’t care if the regulators have issues—it’s buying the company.

ARM Holdings and Softbank are merging in a cash transaction. In an unusual step, there aren’t regulatory or antitrust conditions to the transaction.

The Softbank-ARMS Holdings merger intends to increase Softbank’s growth so that it can position itself as a leader in Internet of Things.

On July 18, Japan’s Softbank and the United Kingdom’s ARM Holdings (ARMH) announced a merger where Softbank will buy ARM for 1,700 pence in cash.

The consensus 12-month target price for UnitedHealth Group’s stock is ~$152.60, which represents a rise of 8.8% from the stock’s closing price of $140.30 on July 11, 2016.

If the merger caused cable providers to drop Starz because they didn’t want to work with Lions Gate, it wouldn’t be a MAE (material adverse effect).

According to the MAE (material adverse effect) clause of the Starz-Lions Gate deal, legislation that limits intellectual property protection wouldn’t be considered a MAE.

In the merger deal between Lions Gate Entertainment (LGF) and Starz (STRZA), the MAE (material adverse effect) clause lays out the circumstances under which either party can back out of the transaction.

In this part of the series, we’ll look at the MAE clause of the Amsurg (AMSG) merger agreement with Envision Healthcare (EVHC) and how Amsurg could back out of the deal.

In the risk arbitrage world, a 2.8% annualized return is pretty small. There’s some overlap that could concern regulators. The main risk would be the timing risk.

In the case of Amsurg (AMSG) and Envision (EVHC), the gating item will depend on how closely antitrust regulators look at the transaction.

Amsurg and Envision are merging. Envision shareholders will receive 0.334 shares of Amsurg stock for each share of Envision they hold.

On June 15, Amsurg (AMSG) and Envision (EVHC) announced a merger. Envision will hold 53% of the new company and Amsurg will hold 47%.

The merger spread is trading at 1.1% gross—about 1.9% annualized. Even in an unusually low interest rate environment, that’s a low return.

If the Talen deal closes as advertised, you will make about $0.15. If the deal breaks, you will lose $1.85 per share. So, the risk-reward ratio is just over 12:1.

Given Talen’s close proximity to the Marcellus Shale region, it faces competition from other electricity generating companies that use cheap natural gas.

Salesforce.com is paying a pretty penny for Demandware at 11 times its revenue. This gives a good indication of just how much potential growth Salesforce.com sees in the space.

Salesforce.com (CRM) is buying e-commerce cloud computing firm Demandware (DWRE) in a $2.8 billion transaction. The merger is structured as a tender offer.

Demandware (DWRE) was trading at about $48 per share before the deal was announced.

Competitive deals can make your quarter if you’re a merger arbitrage professional.

Traditionally, arbitrage desks would have a portfolio of 40–50 “safe” transactions, and these make up the bread and butter of their returns.

On June 1, Salesforce.com (CRM) announced it was buying Demandware (DWRE) in a $2.8 billion transaction.

As of May 31,178 of XLV’s stocks were trading above their 20-day moving averages and 25% were trading above their 50-day moving averages.

Bayer AG sent a bear hug letter to Monsanto (MON) publicly stating its intent to purchase the company for $122 per share in cash.

In the Monsanto-Bayer deal, Bayer’s shareholders should expect to see mid-single-digit accretion to core EPS (earnings per share) in the first year and double-digit accretion thereafter.

On May 23, Bayer confirmed it was interested in buying Monsanto for $122 in cash per share, or an aggregate value of $62 billion.

On May 16, 2016, Pfizer (PFE) announced that it was acquiring dermatology pharma company Anacor (ANAC) in a transaction valued at $5.2 billion.

This transaction is a classic merger arb core position. There’s always the possibility of someone coming in over the top for St. Jude Medical (STJ).

Abbott Labs is buying St. Jude Medical for about $30 billion in cash, stock, and assumed debt to become a dominant player in the cardiovascular health space.

On April 28, Abbott Labs and St. Jude Medical announced an agreement where Abbott will buy St. Jude for $30 billion in cash, stock, and assumed debt.

On May 1, Baker Hughes (BHI) and Halliburton (HAL) officially terminated their merger agreement. Halliburton will pay Baker Hughes the $3.5 billion reverse termination fee.

In its 1Q16 conference call, Anthem updated its 2016 revenue guidance to $81 billion–$82 billion—higher than the previous projection by about $1 billion.

In 1Q16, UnitedHealth Group witnessed overall medical cost trends in the range of 5.5%–6.5%. This is in line with the 2016 guidance given in December 2015.

UnitedHealth Group’s healthcare delivery business, OptumHealth, managed to earn $4 billion revenues in 1Q16, which represents a YoY growth of about 22%.

Given the high-risk profile of individual exchange enrollments, UnitedHealth Group has decided to offer plans only on a few public exchanges in 2017.

UnitedHealth Group (UNH) posted its 1Q16 earnings on April 19. The company registered diluted EPS of $1.81—17% higher than its EPS in 1Q15.

The consortium’s offer of $40.50 was a 30% premium to Lexmark’s price on October 21, 2015. The deal is the culmination of a six-month process.

A consortium bought Lexmark for $3.6 billion. In many ways, this transaction is about getting Lexmark easier access to fast-growing Asian economies.

Hatteras has a no-shop provision with a fiduciary out. This means that Hatteras isn’t allowed to solicit other buyers during the pendency of the merger.

The rally seen in the healthcare sector over the last five years has largely been driven by biotechnology stocks.

From a purely NAV (net asset value) return standpoint, the Fidelity Magellan Fund stood fifth in the one-year period ended March 18, 2016, among its peer group.

On March 21, Starwood and Marriott amended their merger agreement to top Anbang’s offer. The amended merger spread is trading at an annualized return of 1.3%.

On March 14, Starwood Hotels & Resorts Worldwide (HOT) announced that it received an unsolicited takeover approach from a consortium of investors led by China’s Anbang Insurance Group.

The $28.50 purchase price was a high premium of over 24% to where The Fresh Market was trading on March 11, 2016—the day before the deal was announced.

The Fresh Market has a go-shop provision. It can solicit other bids for the first 21 days. Then, it will be held to the customary no-shop provision with a fiduciary out.

As with any private equity transaction, the goal is to buy the company, improve its performance, and then sell it back into the marketplace at a higher multiple.

Humana reported revenues of about $54.3 billion in its 2015 results. This amounts to a 12% revenue growth in 2015, compared to ~$48.1 billion in 2014.

There’s the possibility of a bidding war. Arbs will probably have a small position in case there’s a bidding war. They will scale in if the spread widens.

The $42 purchase price was a high premium of over 33% to where Tumi (TUMI) was trading on March 2, 2016—the day before the deal was announced.

Samsonite will need to file for merger approval under the Hart-Scott-Rodino Antitrust Improvements Act. The companies will need to file for Canadian antitrust approval.

Hong Kong-based Samsonite is buying luxury brand Tumi (TUMI) in a $1.8 billion deal. Samsonite is mainly known as a utilitarian luggage company.

On March 3, Samsonite and Tumi announced that Samsonite will buy Tumi in a $1.8 billion deal. The deal will be a cash transaction set at $26.75 per share.

DaVita HealthCare Partners (DVA) was one of the biggest winners for the week ending March 4 with a return of 6.1%.

The ITC (ITC)-Fortis transaction is a utility deal and arbitrageurs tend to avoid them. State regulatory approvals are generally inscrutable.

ITC (ITC) was trading at ~$33 per share before the press reported it was in talks for a sale. If the deal breaks, will ITC’s share price return to its former level?

Fortis (FRTSF) is buying ITC (ITC) in the largest Canadian purchase of a US utility. Fortis intends to sell a 19% stake in order to help finance the transaction.