• Research

Mar 8, 2018

S3 Analytics: ESRX Shorts down $163 million in M&A Activity

Insurer Cigna Corp (CI) is planning to acquire pharmacy benefit manager Express Scripts Holdings (ESRX) for $52 billion in stock and cash, $67 billion including debt. This deal follows a successful CVS Health (CVS)/Aetna (AET) tie-up; two deals that were blocked by regulators Aetna (AET)/Humana (HUM) and Cigna (CI)/Anthem (ANTM), and a “partial” deal of Albertson’s (ABS) buying the remainder of Rite Aid’s (RAD) assets which were leftover from Walgreen’s (WBA) acquisition. This move towards consolidation is in response to a new playing field in a post-Affordable Care Act world and increased competition from Amazon.com (AMZN.)

Express Scripts Holdings (ESRX) is the largest short in the Healthcare Distributors, Facilities and Services Sectors with $1.7 billion in short exposure, but over the last month short interest has declined by $209 million as short sellers have been covering some of their exposure in anticipation that ESRX was becoming more of a “target” company in this deal-making environment. Other Health Care Service Providers with recent dips in short exposure include Civitas solutions (CIVI), Almost Family Inc (AFAM) and Quest Diagnostics (DGX.)

In the Managed Healthcare Sector, UnitedHealth Group (UNH) continues to be the largest short with $1.9 billion in short interest, an increase of $243 million over the last month. Anthem Inc (ATHM) is the second largest short in the sector and had the largest increase in short interest over the last month, with short exposure increasing $491 million, almost 50%.

In late morning trading, Cigna’s stock price is down 10% and short sellers are up $51 million in market profits bringing year-to-date profits into the black at $47.3 million in profits. The opposite is true for Express Scripts short sellers who are down $163 million in mark-to-market losses today on ESRX’s +9.5% price move.

If M&A activity continues to grow in the Health Care Sector we should see short interest increasing in the acquirer stocks and decreasing in the “target” stocks. The increase in short interest for UNH may mean it may join ANTN and CI in its own merger related activity.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
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