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Anthem's attempted Cigna takeover leaves rating agencies skeptical

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Two major credit rating agencies have warned that a potential merger between health insurance giants Anthem Inc. and Cigna Corp. could expose the combined company to significant financial and integration risks.

Standard & Poor's Corp. analysts said Monday in a statement that the New York-based rating agency has placed Anthem and Cigna under review with negative implications, citing concerns about the level of new debt Anthem would likely need to assume in closing its proposed $47 billion acquisition of Cigna, as well as complications arising from the integration of the two companies.

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“There are several variables that are unknown at this time, including, but not limited to, the final price of such a transaction, management changes if any, financing details and regulatory hurdles,” Deep Banerjee, an associate director and credit analyst at S&P, said in the statement. “We will also be discussing with Anthem's management their risk tolerance limits in terms of their financial policy.”

In a separate report, New York-based Fitch Ratings Inc. also expressed concern that Anthem's bid to acquire Cigna would leave the combined company overleveraged in the near term, though it said it was holding off on applying its own negative rating watch until a transaction between the two companies becomes more probable.

So far, Bloomfield, Connecticut-based Cigna has rejected Anthem's bids, including the $47 billion proposal it made public over the weekend.

The combined company would generate approximately $115 billion in total revenue and serve more than 53 million members, Anthem CEO Joseph Swedish said Monday during a conference call with investment analysts.

Despite concerns about potential deterioration of its financial risk profile, analysts at both Fitch and S&P said Anthem's proposed acquisition of Cigna would position it well in the current and prospective U.S. health insurance marketplaces, benefiting from a substantial increase in scale and diversification of its operations.

“Fitch believes the increasing role of the federal government in health insurance is making size/scale and market positioning even more critical to the future success of health insurance organizations,” Fitch analysts said in their report, adding that a merger of Anthem and Cigna would be timely, given the increasing likelihood of additional consolidation within the health insurance industry.

“While Fitch believes UnitedHealth Group Inc. would still be well positioned without further participation in industry consolidation, any of the remaining top four players, including Anthem, Cigna, Aetna Inc. and Humana Inc. could be compromised competitively if others participate, and they are excluded,” the report said.