Cigna shares jump on reports of abandoned Humana buyout, plans for $10 billion stock buyback

Shares of Cigna jumped Monday following reports that the health-care giant has scrapped its plans to buy rival Humana due to disagreements on price, putting an early end to what would have been one of the largest deals of the decade.

Cigna late Sunday also announced plans to buy back $10 billion worth of shares, bringing its total planned repurchases to $11.3 billion. The company said in a release that it will consider smaller, “bolt-on” acquisitions in the near term, but did not confirm the reports about its abandoned pursuit of Humana.

Cigna’s stock popped nearly 14% Monday morning, while Humana’s stock was flat.  

Spokespeople for Cigna and Humana did not immediately respond to CNBC’s requests for comment on the called-off merger, which was first reported by The Wall Street Journal on Sunday. 

Cigna and Humana couldn’t agree on price and other financial terms of the deal, which would have created a health-care conglomerate with a value exceeding $140 billion, sources familiar with the matter told the Journal. 

That tie-up would have likely attracted fierce antitrust scrutiny. Shares of the companies fell sharply in late November after the Journal first reported that they were discussing a merger. 

But Cigna continues to believe in the merits of a tie-up with Humana, the Journal reported Sunday. The combined company would have been focused on improving access to care and lowering costs for consumers, sources told the Journal.

Jefferies analyst David Windley upgraded shares of Cigna to buy from hold in a Sunday research note, saying the abandoned Humana deal is a “short-term win” for Cigna investors. 

He added that “taking advantage of a negative reaction to deal reports” by announcing its stock buyback plan on Sunday is “music” to Cigna shareholders’ “value-sensitive ears.” 

Windley noted that shares of Cigna have been down sharply since Nov. 6, when reports emerged about the company exploring a sale of its Medicare Advantage business, which manages government health insurance for people age 65 and older. 

Investors interpreted that potential sale as a “step to reduce its antitrust exposure in a deal to acquire” Humana, Windley said.