market folly

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Mark McKenna of BlackRock who pitched a long of Cigna (CI).


Mark McKenna's Capitalize For Kids Presentation: Long Cigna

•    It is a vertical merger
o    Vertical integration. Reduce costs, increased access, integrate an experience, intensify experience
o    Transformative experience
o    Old media telco -> phone, PC, TV, Content all different and silo’do    Current media telco -> content, TV, phone, network, PC, content, all completely integrated, leading to a superior experience
•    Early days in healthcare transformation that should follow media’s lead
o    Liquid, large cap, 40-80% upside in NTM
o    Healthcare today: Everything is disparate. Doctor, pharmacy, MRI, Hospital, etc all silo’d
o    Healthcare going forward: all integrated and information shared etc
•    Cigna, Express Scripts deal. Additive thru integration
•    Cigna - health Network
o    Dentist, Doctor, Hospital, MRI - Medical Expertise
o    Cigna doesn’t take risk, but for a self-insuring company, they manage the rest of the networks, management, etc
•    Express Scripts - PBM network
o    Formulary
o    Pharmacy

•    No communications between the two for 30-60 days
•    Integrates experience
o    Expansive data set
o    Fully aligned incentives (Shouldn’t be writing more scripts)
o    Increased patient touchpoints and deeper health interventions
o    Total cost of care reduction and better patient outcomes
•    Value creative for Cigna shareholders
o    Cigna EPS 2021 from $18 —> $2.50 post deal
o    Mostly cost synergies, but $2 / share of revenue synergies, which is a conservative estimate
o    Thinks its very likely these are realized
•    Carl Icahn hates it
o    Price
o    Regulatory risk
o    Competitive disruption
o    Post-Anthem margins and customer retentions
o    Value destructive
•    BlackRock lead a behind the scenes campaign between shareholders and ISS
o    BR got the deal thru
•    30-40% recovery even if doesn’t happen, from recovery of share price + 15% share repurchase


Be sure to check out the rest of the presentations from Capitalize For Kids 2018.