With Cigna chairman Ed Hanway indicating at a recent investor conference that the company was open to the possible sale of its pharmacy benefit management unit (hat tip: The Wall Street Journal), now the question is what’s the business worth?
JPMorgan analyst Lisa Gill says about $1 billion, adding that Medco is the most likely buyer. Gill bases her estimate on the assumption that Cigna’s PBM processes 65 million prescriptions annually, generates cash flow (EBITDA) of about $98 million, and is valued 10% below the multiple WellPoint’s PBM attracted.
She adds, however, “The ultimate value of a transaction is likely to be highly dependant on the long-term PBM contract that would be entered into between the two parties in conjunction with a deal….Said another way, better pricing and/or terms for the long term contract for the PBM would likely lead to a higher upfront payment from a potential acquirer.”
I’d previously speculated (see prior post) that given the hefty price tag in WellPoint’s PBM sale, other managed care companies were likely to dump their PBM units as well. Given Cigna’s challenges in its core healthcare business, it’s not surprising it would be among the first to consider such a move.
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