For Icahn, Amazon Is a Reason Not to Do a Deal

Just the threat of competition from Amazon has driven companies across many industries into deals.

Nowhere has that been more evident than in health care. The possibility of Jeff Bezos’ e-commerce juggernaut starting a pharmacy business was partially responsible for two of the largest health care mergers of the past 12 months: pharmacy chain CVS Health’s announced $69 billion merger with the health insurer Aetna and health insurer Cigna’s announced $52 billion deal for Express Scripts, a pharmacy benefit manager.

But now Carl Icahn, the billionaire activist investor, is citing Amazon in opposing the latter deal.

In a public letter to Cigna shareholders, Icahn, who owns a stake of undisclosed size in the company, offered a bleak assessment of its acquisition of Express Scripts:

“Purchasing Express Scripts may well become one of the worst blunders in corporate history, ranking up there with the Time Warner/AOL fiasco and General Electric’s long-running string of value destruction.”

The activist investor criticized the price that Cigna is paying and questioned whether the White House’s desire to lower drug prices could crimp Express Scripts’ profitability. Icahn also argued that Amazon’s acquisition of online pharmacy PillPack puts the e-commerce giant in competition with Express Scripts’ own mail-order pharmacy business. From Icahn’s letter:

“With their 100 million prime members, Amazon has become one of the toughest competitors in history (feel free to ask the retail industry), while their ultimate health care plans are not revealed yet, it is almost certain the first step of a much larger play in the pharma distribution space. Make no mistake, Express Scripts is no Apple and breaking into the PBM ecosystem is not that difficult for a company that already has the systems, the network and the scale that Amazon does. Knowing this, it is absurd for Cigna to now walk into the minefield that Express Scripts might well become.

Until now, Amazon’s much-discussed entrance into health care was a reason to strike deals. Its potential entrance, along with concerns about rising drug prices, had led health care companies to rethink how they can compete. It was those dynamics that helped push Cigna into its deal for Express Scripts.”

In his letter, though, Icahn argued that the best course of action might be no deal at all. Cigna could form a business partnership with Express Scripts to get into the pharmacy benefit management business without spending billions, Icahn said. Or it could build up its own Express Scripts-style business. Or it could just buy back stock.

What is on the table now, in Icahn’s eyes, is just a bad idea. Particularly with one of the world’s most powerful companies looming large over the future of the combined company.