Anthem-Cigna Drama Shifts to $15 Billion Spat Over Merger


A federal appeals court on Friday delivered what’s likely a final blow to Anthem Inc.’s bid to buy Cigna Corp. Now comes the legal fight over the deal’s failure.

The companies were clashing even before the U.S. moved last summer to block their proposed $48 billion merger. Then in February they sued each other in Delaware, trading accusations of harassment and sabotage.

Cigna claims it’s owed a $1.85 billion breakup fee and $13 billion in damages. It says Anthem tried to undermine its business by stealing confidential information and harassing its customers. Anthem faults Cigna Chief Executive Officer David Cordani, claiming he sabotaged the deal.

Anthem in February won a court ruling temporarily blocking Cigna from terminating the merger while Anthem pursued its appeal. Now that the appeals court has ruled, the Delaware case turns into a fight over the breakup fee and damages, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

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Michael Newshel, an analyst at Evercore ISI, said there was only a slim chance that the deal would be revived. “Anthem’s only inkling of hope now, if it isn’t prepared to definitely end things yet, is for a last-minute deal with DOJ under the new administration — but we think settlement is unlikely,” he said in a note to clients after the ruling.

Anthem said it was disappointed by the decision. “We are committed to completing the transaction and are currently reviewing the opinion and will carefully evaluate our options,” the insurer said in a written statement.

Anthem told the Delaware court in a filing on Wednesday that there were “meaningful opportunities” to complete deal, saying it was seeking a settlement with the Justice Department under the new Trump administration.

“There is a new attorney general and new leadership for the antitrust division, and a combined Anthem-Cigna in all 50 states will benefit consumers in the form of lower medical costs and improved product offerings at a time when the future of the Affordable Care Act is undetermined,” the company said.

President Donald Trump and congressional Republicans want to scrap the Affordable Care Act and replace it, but so far they have been unsuccessful.

Cigna said in a regulatory filing that it was working through the litigation in Delaware and declined further comment. The Justice Department said it was pleased with the decision and that the merger would have raised prices and slowed innovation.

“The decision confirms the district court’s conclusion that the merger would not have provided real benefits to consumers but instead would have harmed competition in these important markets,” said Brent Snyder, a deputy assistant attorney general in the Justice Department’s antitrust division.

Shares Decline

Cigna, based in Bloomfield, Connecticut, rose less than 1 percent to $156.37 after dropping as much as 2 percent after the appeals court decision. Indianapolis-based Anthem declined less than 1 percent to $177.89.

The Cigna takeover was one of two insurer deals that the Justice Department’s antitrust division won court rulings to stop earlier this year to prevent the industry’s biggest players from consolidating. The other was Aetna Inc.’s planned acquisition of Humana Inc. Although Aetna and Humana terminated their deal after losing at trial, Anthem appealed.

Anthem Rebuffed

The appeals court in Washington rejected Anthem’s key argument for why the deal should be approved, that the medical savings resulting from a combination of the two companies were enough to offset any anticompetitive effects.

U.S. Circuit Judge Judith Wilson Rogers, in her majority opinion Friday, agreed with the trial court’s rationale for rejecting Anthem’s claim that the merger would produce Cigna’s superior product at Anthem’s lower rates paid to doctors and hospitals.

“Anthem has not explained why these projected savings would even exist,” Rogers wrote. “The record is clear that Anthem, unlike Cigna, has already achieved whatever economies of scale are available.”

The American Medical Association, which represents physicians, applauded the decision. “The appellate court sent a clear message to the health insurance industry: A merger that smothers competition and choice, raises premiums and reduces quality and innovation is inherently harmful to patients and physicians,” AMA President Andrew W. Gurman said.

Dissenting View

In a dissent, U.S. Circuit Judge Brett Kavanaugh said he’d have sent the case back to the lower court to re-examine whether those lower Anthem-Cigna rates would have been derived from unlawful market power over hospitals and doctors. If not, Kavanaugh said, he’d have allowed the combination.

Concurring with Rogers was U.S. Circuit Judge Patricia Millett, a 2013 selection by President Barack Obama. Rogers was nominated by another Democrat, President Bill Clinton, in 1993. Kavanaugh was a 2006 appointee of President George W. Bush, a Republican.

The appeals court case is U.S. v. Anthem Inc., 17-5024, U.S. Court of Appeals for the District of Columbia. The Delaware cases are Anthem Inc. v. Cigna Corp., No. 2017-114, Delaware Chancery Court (Wilmington) and Cigna Corp. v. Anthem Inc., 2017-0109, Delaware Chancery Court (Wilmington).

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