Cigna Group (NYSE: CI) agreed to acquire Express Scripts Holdings (NasdaqGS: ESRX), but healthcare sector-specific exchange traded funds remain relatively muted.
For instance, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF), which includes 5.7% CI and 5.6% ESRX, was down 0.6% Thursday while the SPDR S&P Health Care Services ETF (NYSEArca: XHS), which includes 2.5% CI and 2.4% ESRX, was 0.1% lower.
IHF provides exposure to U.S. companies engaged in health insurance, diagnostics and specialized treatment. XHS covers companies in the sub-industries involved in Health Care Distributors, Health Care Facilities, Health Care Services, and Managed Health Care, and it follows a more equally weighted indexing methodology.
Meanwhile, the Health Care Select Sector SPDR (NYSEArca: XLV), the largest healthcare exchange traded fund, gained 0.3% Thursday.
Cigna agreed to purchase Express Scripts for around $54 billion, representing a roughly 31% premium to Express Scripts’ closing price on Wednesday, Bloomberg reports.
CI shares plunged 11.3% on the deal while ESRX shares jumped 8.6%.
The deal is seen as the latest development by companies inside and outside the health sector to control medical expenses. Many complaints over healthcare costs have been attributed to drug costs, with criticism spreading from pharmaceutical companies to the middlemen in the supply chain, such as Express Script.
“This transaction is yet another proof of ongoing vertical integration of health-care providers and payors,” Brian Tanquilut, an analyst with Jefferies Group, told Bloomberg.
Executives said the deal could provide opportunity to better manage spending for costly medicines for cancer and other complex diseases.
“We saw this as the, beyond a shadow of a doubt, best strategic proposition,” David Cordani, CEO of Cigna, who will also be CEO of the combined company, said on the conference call. “It is going to deliver a compelling return from a shareholder standpoint.”
For more information on the healthcare segment, visit our healthcare category.