Value Investing, Videos

Cigna CEO Talks About The Future Of Company And Why Icahn Has It Wrong

CNBC Exclusive: CNBC Transcript: Cigna CEO David Cordani Speaks with CNBC’s David Faber Today

WHEN: Today, Wednesday, August 8, 2018

WHERE: CNBC’s “Squawk on the Street

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q2 hedge fund letters, conference, scoops etc

Cigna CEO David Cordani
Image source: CNBC Video Screenshot

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Cigna CEO David Cordani and CNBC’s David Faber on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Wednesday, August 8th. Following are links to video of the interview on CNBC.com:

Cigna beats earnings estimates on top and bottom line

Cigna CEO David Cordani defends Express Scripts deal

David Faber: let’s bring in David Cordani, he of course is the CEO of Cigna. The man who authored the deal itself. And we kind of we’re going to play defend your deal here this morning, David.

David Cordani: good morning.

Faber: always nice to have you this morning and happy to have you as well this morning. You put out a long letter yesterday on this very subject. Mr. Icahn says he has no idea how you can be doing this deal, in his opinion at least, “it’s inexplicably ridiculous.” what say you?

Cordani: well, we’ve been very consistent. The combination with express presents an outstanding opportunity to improve affordability. Per your comments a few moments ago, everybody from the president through corporations through individuals want improved affordability. Cigna and express both individually are functioning very well delivering very low medical cost trend or growth. And the combined company will actually further improve affordability. Cigna stepped forth with a goal to deliver medical costs growth or trend at a CPI level by 2021 and we’re already delivering the lowest medical costs in the industry. So it’s about creating value for customers and clients. And as a result, delivering value back for our shareholders. And we’re committed to this really attractive strategic and financial combination.

Faber: yeah. Mr. Icahn talking about a number of things that are fairly complex in terms of rebates and policy but, David, the timing is good here because I want you to go try and explain, at least, to our viewers and your shareholders – you know last night I guess CMS made some changes to medicare part b to emulate the tools and practices used in medicare part d. Can you sort of give us the sense here as to what the difference between b and d is, and whether it’s good or bad for express scripts?

Cordani: sure, so the headline is it’s good. And from a macro perspective, the commercial market has been using a variety of mechanisms around formularies, so aggregate pools of pharmaceuticals that have clinical effectiveness, working with manufactures, coordinating clinical programs, step therapies, et cetera. And essentially, what the secretary stepped forward and said is ‘it would be a good thing for the medicare programs for some of those the proven capabilities, for example, that Express Scritps does quite well to be afforded to the medicare program with the objective back, to the our first point, of improving affordability with tremendous clinical quality.’ so the secretary’s statements yesterday afternoon we agree with. We view them as an evolution to the marketplace and the combined company is in really good position to be able to perform and deliver more value in that case for medicare beneficiaries through approved affordability. And again in a nutshell it’s using proven commercial solutions for government programs to improve affordability and quality.

Faber: Icahn suggested you guys could do instead of buying express you can do a multiyear partnership. And that would be better than buying them and taking the risk therein. Why is that not something, perhaps, you would have explored or considered? I know you had a multiyear partnership with catamaran a number of years ago. That was then acquired. But give me some sense there as to why that wouldn’t be an appropriate avenue.

Cordani: Sure, David. So, first, we’re a company that does believe in partnering, so in a broader sense, we partner quite effectively, for example, 500 physician groups and hospitals around the united states to help to coordinate and deliver better value and care. So we get the concept of partnering. More broadly, relative to this combination, it’s more broad than a PBM acquisition. There’s a set of capabilities. There’s a tremendous distribution expansion capability for us. For example, Cigna only overlaps with 10 to 15% with express scripts commercial clients. Cigna doesn’t compete in the health plan space. Express scripts does and it presents an opportunity for us to offer behavioral and well-being solutions, et cetra. And importantly, what’s being proven right now is, the integration of data to work more effectively with the practicing physician the benefit of our patients or customers presents just an outstanding opportunity to improve affordability, quality, and service. So we see it as a strategic reformatting and repositioning opportunity. Beyond that, mr. Icahn suggests that what Cigna should do is sit on the sidelines, allow the marketplace to shake itself out, and buy back our stock. We don’t believe that that is a strategy. We believe that is more financial engineering and we’re attuned to being able to delivering outstanding shareholder value. I would just highlight the fact that we delivered in excess of 380% TSR over the last eight plus year. So we’re used to delivering outstanding shareholder value but we do so by working in the marketplace to create value for our customers and clients.

Jim Cramer: All right, Mr. Cordani. Jim Cramer. You know I’m a huge supporter of Cigna. It’s been a remarkable stock. And a great supporter or Philadelphia, which still matters to me. But I do want to ask you something: if you stayed independent, when I look at the CVS’ numbers today and how great their pharmacy benefit manager does, you’ve got a fantastic pharmacy benefit manager. I am not saying that the combination could be interesting long-term – I think it is. But your stock, I think, I could argue, would be at 200 to 210 today, just based on what cvs is saying and what united health is saying. How do you deal with the fact that would be fabulous performance and everyone would want that?

Cordani: So, Jim, again, good morning and thanks for your comments. We’ve delivered great results. Our 2017 results were off the charts, top line, bottom line, we delivered the best medical cost trend again in the industry in 2018 will be the sixth consecutive year. So we have a strong foundation and we’re delivering for our clients and our customers as we grow our business. We’re proud of that. Secondly, we view our stock as temporarily dislocated. It’s a phenomenal value today and we’re confident we’re going to grow the value over time. The difference is this combination presents an opportunity for immediate value creation, mid teen accretion in the first year -- we don’t have to wait three or four years -- mid teen accretion in the first year excluding the known transitioning clients. Exceptional free cash flow. Six plus billion dollars in 2021, but cash flow in the first 18 to 24 months to delevarge the franchise and still have significant capital to deploy even in those 18 to 24 months for additional shareholder value creation. So we agree with you. Our company is high value. Our company has been performing quite well. And we’re confident in our ability to create tremendous shareholder value. But having these capabilities to further improve affordability, to take our country to a sustainable level of a cpi or better level medical cost trend, with these partnerships with the physicians and broadening our reach to address the marketplace and drive growth, that’s attractive to us. All while delivering that outstanding shareholder value. We don’t have to wait three to five years for it. We’ll deliver that accretion in year one.

Faber: David, have you talked to Icahn? Did he get in touch with you some way? Did you have a dialogue?

Cordani: we’re disappointed that he chose that his means of communication was an open letter. There’s been no inbound to our corporation.

Faber: ISS coming up with a decision, and it can typically in situations like this be certainly of importance, given its influence to some large shareholders. Can you characterize how your conversations with ISS have gone and the arguments you made there and what your expectations are when they come out with their recommendation I think on Friday most likely?

Cordani: yes. Strong governance is an important part of what ISS would look at. We’ve had very good engagement with iss to walk through the strategic rationale, the governance framework that was applied over the top, the evaluation framework and the value creation framework including the mitigants to deal with the changing marketplace, including changing regulations around the overall market. We’re confident in terms of the shareholder value creation. We’re confident that is understands the shareholder value we’ve created over the last eight plus years and we have a good open line of communication with them to ensure they have all the information they need to draw the conclusions.

Faber: and, finally, David – unless Jim has another one, I’m not sure – just say the word “Amazon” and everybody runs for the hills. Carl uses it in his letter -- Mr. Icahn. Frame the competition that you expect here from amazon for me in terms of what it will mean for this combination.

Cordani: David, there’s no doubt the marketplace continues to go through evolutionary change at a minimum. Some people could point toward revolutionary change. Which is why as a company we’ve continued to invest heavily in innovation. We’ve poured about 3/4 of a billion dollars back into our franchise over the last couple of years in terms of technology, solutions, capabilities, et cetera to broaden our direct to consumer reach, our partnership capabilities with a physician community and the health care professional community. As it relates to amazon, it’s another example of change and evolution. They’re entering the mail order pharmaceutical fulfillment. We see that action. Obviously we anticipated that action. The clinical integration we think is the point of differentiation. How a company like Cigna is able to create better activity for an individual or patient with their physician to enable them to either maintain their health, lower their health risk -- 25% of Americans have high health risks. Optomize their care if they’re in a chronic condition to be more coordinated. For example, people with chronic care or have a higher probability of needing behavioral resource support – we’re one of the largest behavioral providers. And then getting the best acute care. We see it as a changing marketplace. We’re well positioned and we’re even more effectively strategically positioned with the express scripts combination to be able to deliver value for our clients and customers.

Faber: David, we will leave it there for now. But certainly appreciate your lending your voice to this debate this morning. And we’ll, of course, await the outcome of the shareholder vote a little more than two weeks from now. Thank you.

Cordani: thank you for your time today.

Faber: sure thing. David Cordani, CEO of Cigna.