The Cigna-Anthem merger may be officially over, but the two insurers continue to fight over payment of a breakup fee and damages.
After a series of lawsuits and judgments, the proposed $48 billion merger between two of the nation’s largest health insurers has officially collapsed. The final blow came when a Delaware judge blocked Anthem Inc.’s request to postpone its union with Cigna Corp. for another 60 days and backed Cigna’s petition to end the deal.
Cigna is arguing that Anthem was “too stubborn” to recognize that potential regulatory issues involving competition would be insurmountable — as such, Anthem could potentially be on the hook for $1.85 billion in breakup fees, and an additional $13 billion in damages.
In his ruling, Delaware Judge Travis Laster nixed any possibility of a 60-day extension, citing the fact that it was incredibly unlikely that the merger would ever be completed. However, he ended up backing Anthem’s claim that Cigna may have violated the merger agreement by “dragging its feet on antitrust concerns,” which could turn the tables and entitle Athem to “potentially massive damages.”
According to antitrust lawyer Matt Cantor, “Both parties probably have some risk and they’ll bargain for something between zero and $1.85 billion.”
Merger Cancelled on Antitrust Grounds
The proposed merger received its first setback in July of last year when the Justice Department’s Antitrust Division ruled that the merger would shrink the number of competitors in the marketplace, leading to higher expenses for health insurance purchasers. A U.S. District judge subsequently upheld that decision.
Last month, a federal appeals court in Washington, D.C. again rejected Anthem’s assertion that the deal would ultimately result in cost savings for consumers through better efficiencies. Similar questions temporarily derailed the proposed $37 billion merger between Aetna and Humana earlier this year after a federal judge seconded the Justice Department’s opinion the deal violated antitrust laws.
In addition to unfavorable rulings, infighting between the insurers apparently doomed the merger. Testimony during the antitrust trial revealed deep fissures between the two parties. Cigna CEO David Cordani said he doubted whether the merger would bring about any benefits, while Anthem CEO and President Joseph Swedish testified the company planned to keep Cigna’s executives “in the dark” about its integration plans, Bloomberg reported.
What Happens Now?
According to a report in HealthPayerIntelligence.com, Anthem filed a writ to have the U.S. Supreme Court review the federal appeals court ruling. Although it’s doubtful the Supreme Court will hear the case now that the merger has been abandoned, the insurer may attempt to obtain a more favorable ruling on the merger with the Justice Department given the Trump administration’s more business-friendly stance. That is if the insurer decides to revive the merger after cancelling it.
As the legal fight over fees and damages progresses through the courts, the two insurers will likely search for new merger partners, Leerink Partners analyst Ana Gupte told Bloomberg. Gupte says Anthem will likely seek smaller acquisitions up to $6 billion. Cigna, meanwhile, will either repurchase shares — a move it outlined in its statement after the Anthem merger dissolved — or explore its own merger deals. “I think they’ll end up being more acquisitive,” Gupte said.
However, in light of recent judicial rulings and the general uncertainty in the marketplace due to impending healthcare reform, health insurers looking to merge potentially face an uphill legal battle as well as an unknown future, which makes deals harder to pencil out. It remains to be seen if consolidation is the right prescription for the healthcare insurance industry at this time.