Flying solo without Cigna will keep Humana focused on 2 big priorities in the year ahead

Published Mon, Dec 11 202312:46 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

It looks like Cigna has scrapped its takeover bid for Club holding Humana , removing a dark cloud over both stocks that's lingered since the acquisition talks surfaced nearly two weeks ago. Cigna and Humana were unable to agree on an acquisition price and other financial terms, The Wall Street Journal reported Sunday. Cigna will focus its near-term dealmaking efforts on smaller takeovers, the paper added. Shortly after the Journal report, Cigna announced on Sunday a $10 billion stock buyback plan . It's welcome news that Cigna and Humana are reportedly walking away from a deal that would've created a health insurance giant worth more than $140 billion. While the combined company may have been better positioned to compete against larger peers, such as UnitedHealth Group , a tie-up was likely to face intense scrutiny from U.S. antitrust regulators, which weighed on their stock prices. Indeed, Jim Cramer thought it would never be approved, saying last month when reports of talks first surfaced that it's "one of the most ill-advised deals" he's ever heard. Facing a protracted antitrust battle would distract Humana's management team at a key moment for the Louisville-based insurer, Jim has argued. Not only is Humana facing a CEO transition – with longtime chief Bruce Broussard set to retire in late 2024 – but the company's key Medicare Advantage business will also face tougher growth comparisons next year due to impressive membership additions in 2023. Those are two big priorities for Humana in the year ahead. Cigna jumped roughly 16% on Monday as investors cheered both The Journal's reporting on the end of Humana talks and the company's stock buyback announcement. Shares of Humana slipped 1.4% on Monday to around $475 each. We trimmed Humana on Oct. 6 when the stock traded above $500 per share again. On Nov. 1, we viewed the stock's overdone 6.5% sell-off, to around $489 per share, despite reporting a solid quarter as a buying opportunity . Shares on Monday were more than 3% below their close on Nov. 1. HUM YTD mountain Human YTD "I am a bit surprised ... to see Humana trade lower" on Monday following the Cigna news, said Jeff Marks, the Club's director of portfolio analysis. Cigna's increased buyback commitment may put pressure on Humana to take similar actions, Marks also suggested. Humana reiterated its commitment to repurchase about $1.5 billion worth of stock in 2023 on its Nov. 1 earnings call. At that time, the company had spent about $1 billion. Ultimately, the regulatory hurdles and investor pushback seem like bigger factors that resulted in Cigna's decision to abandon the acquisition, Marks added, rather than there being issues with Humana unearthed during the due diligence process. Humana declined to comment Monday on The Journal's report. Cigna did not immediately respond to CNBC's request for comment. Excluding Monday's session, the stocks of both Cigna and Humana had struggled since The Journal reported on Nov. 29 that the two companies could strike a stock-and-cash transaction by year-end. Some Cigna shareholders, in particular, had expressed opposition to buying Humana, CNBC's David Faber has reported . On the day of the Journal's initial story, Cigna and Humana plummeted 8% and 5.5%, respectively. And, as the prospect of a tie-up loomed, the stocks failed to gain traction in the seven trading sessions that followed (as of Friday's close). Cigna shares fell an additional 1.55% during that stretch, while Humana was essentially flat. Meanwhile, the S & P 500 had gained 1.2% between the Nov. 29 close and Friday and the overall health-care sector advanced 1.8%. Cigna still believes a Humana acquisition would be beneficial and able to receive regulatory clearance, the Journal said. But, at this point, it fortunately seems like Humana shareholders won't have to find out how antitrust regulators would've handled it. Instead, Humana can stay focused on trying to sustain strong performance in the competitive Medicare Advantage market and smoothly hand over the CEO reigns to health-care veteran Jim Rechtin later next year. (Jim Cramer's Charitable Trust is long HUM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

In this photo illustration, Humana Inc. logo seen displayed on a tablet.

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It looks like Cigna has scrapped its takeover bid for Club holding Humana, removing a dark cloud over both stocks that's lingered since the acquisition talks surfaced nearly two weeks ago.