Only weeks after announcing talks about a possible $60 billion merger, Humana and Cigna have ended negotiations with no deal reached, and both saying they will remain separate.

Shareholder concerns about the agreement and failure to agree on financial terms led the companies to abandon their plans to become an estimated $140 billion enterprise before the end of the year, according to The Wall Street Journal. Skeptics also expressed doubt due to antitrust scrutiny, which has resulted in more crackdowns by the Biden administration on consolidations among large companies over the last year.

Whereas stocks for both companies dropped when the talks were first revealed, the end of them sent Cigna’s up by as much as 16%. This was also partially due to the company’s announcement that it was repurchasing $10 billion worth of its shares, increasing its total planned repurchases to $11.3 billion. Humana’s stock dropped 2%.

"We believe Cigna's shares are significantly undervalued and repurchases represent a value-enhancing deployment of capital as we work to support high-quality care, improved affordability, and better health outcomes," said David Cordani, chairman and chief executive officer of The Cigna Group, in a statement.

If successful in making a deal, Cigna would have acquired Humana through a combination of cash and a large stock component, but shareholders reacted “coolly” to talks from the beginning, according to The WSJ. Cigna told the news outlet that it still believes a combined company would have improved access to care and lowered consumer costs.

The deal would have given it and Humana greater scale to go head-to-head with rivals UnitedHealth Group, CVS Health, and other insurers. But any agreement would also result in a combination of both organizations’ pharmacy drug benefit management businesses, which may have alarmed antitrust regulators due to the potential impact it could have on pharmacies and suppliers. Cigna owns Express Scripts, which manages prescription drug plans and has strong commercial insurance benefits, while Humana offers drug benefits for Medicare beneficiaries.

To assuage antitrust concerns, as well as due to poor performance from limited reimbursement, Cigna was considering selling its Medicare Advantage business as part of a deal with Humana. Instead, it will use "the majority of its discretionary cash flow for share repurchase in 2024," said Cordani and repurchase at least $5 billion of common stock between now and the end of the first half of 2024. It also plans to carry out smaller acquisitions.

"In light of the current environment, we will consider bolt-on acquisitions aligned with our strategy, as well as value-enhancing divestitures,” said Cordani.

This marks the second failure of the two companies to merge with one another, with the first taking place in 2015, reported The Hill.

In a memo to their clients, Jefferies analysts David Windley and Steven Couche said that Cigna was smart to walk away from the deal with Humana, saying it did not have the necessary investor support and that according to their deal model, the combined company would not have seen earnings per share accretion until three years after the merger.

"Regardless of the reason, taking advantage of a negative reaction to deal reports by directing almost all [free cash flow] toward buybacks is music to [Cigna] holders' value-sensitive ears," the analysts wrote.

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