Shares of Humana (HUM) and WellCare (WCG) are under pressure today after Cigna (CI) announced that it has agreed to acquire Express Scripts (ESRX) in a cash and stock transaction valued at about $67B. Commenting on the news, Piper Jaffray argued that the deal makes it less likely in the near-term that Cigna would buy a Medicaid or Medicare Advantage plan.

EXPRESS SCRIPTS ACQUISITION: Cigna and Express Scripts announced that they have entered into a definitive agreement whereby Cigna will acquire Express Scripts in a cash and stock transaction valued at approximately $67B, including Cigna's assumption of approximately $15B in Express Scripts debt. The merger consideration will consist of $48.75 in cash and 0.2434 shares of stock of the combined company per Express Scripts share. Upon closing of the transaction, Cigna shareholders will own approximately 64% of the combined company and Express Scripts shareholders will own approximately 36%. Upon closing, the combined company will be led by David Cordani as President and CEO. Tim Wentworth will assume the role of President, Express Scripts.

MEDICAID, MA DEAL LESS LIKELY: Commenting on the announcement, Piper Jaffray analyst Sarah James told investors that she does not foresee any issues with approval, even though a Cigna/Express Scripts combination would increase annual script volume to 848M, making it the third-largest pharmacy benefit manager. However, the analyst noted that she does not expect Cigna's script volume to transition over to a combined company until 2023 when its contract with UnitedHealth's (UNH) OptumRx ends. Nonetheless, James argued the deal makes it less likely that Cigna will buy a Medicaid or Medicare Advantage plan near-term, consistent with management's softened language around using M&A to win long-term services and supports, or LTSS, contracts. Two names that have been seen as potential targets in the sector are Humana and WellCare.

WHAT'S NOTABLE: Some Wall Street analysts had previously seen Cigna as a potential takeover target for Amazon (AMZN) as they speculated what the next step would be for the e-commerce giant, especially following its health care venture with Berkshire Hathaway (BRK-A., BRK-B) and JPMorgan (JPM).

PRICE ACTION: In late morning trading, shares of Cigna have plunged about 9.5% to $175.90, while Express Script's stock has gained over 11% to $81.63. Shares of Humana are fractionally down to $272.27, and WellCare's stock has slipped almost 1% to $193.03.