Anthem terminates Cigna merger

Dive Brief:

  • Anthem delivered a notice to Cigna on Friday officially ending its $54 billion proposed acquisition.
  • The notice comes as a response to the court decision yesterday that prevented Anthem from continuing to bar Cigna from terminating the deal because it had been attempting to leave since February, which is when a federal judge first blocked the deal on antitrust grounds.
  • However, Anthem is arguing that Cigna is not entitled to the $1.85 billion contractual breakup fee because it “has failed to perform and comply in all material respects with its contractual obligations,” the company’s announcement states.

Dive Insight:

This is the end of Anthem-Cigna, and it could not have been a more perfect example of the squabbling between the two health insurance giants that went on for more than a year.

“Cigna’s repeated willful breaches of the merger agreement and its successful sabotage of the transaction has caused Anthem to suffer massive damages, claims which Anthem intends to vigorously pursue against Cigna,” Anthem’s announcement added.

Cigna still has a lawsuit against Anthem in which it is seeking not just the breakup fee, but also more than $13 billion in damages. The company stated earlier this month in an SEC filing that it intends to “vigorously defend” and pursue its claims. It also plans to "immediately increase the open market share repurchase activity as a result of the termination of the transaction," according to its announcement of the terminated merger

After yesterday’s ruling, the expectation was that Cigna was going to soon end the deal. But Anthem beat Cigna to it. The Delaware judge had given Anthem until noon on Monday to decide whether to appeal his decision with the state's Supreme Court.

The two companies are going to have a hard time engaging in future M&A activity after all of this. Their infighting was too nasty for too long and the various judges they faced were quick to point it out. The bickering led judges to believe Anthem and Cigna would not be able to integrate the companies successfully and generate the efficiencies they claimed the combined company would achieve.

The judges weren't the only skeptics. Industry groups like the American Hospital Association (AHA) opposed the deal. In a court brief, the AHA stated the merger would tamp down innovation just as it is most needed for improving value-based payment models. 

“The termination of the Anthem-Cigna merger is a clear victory to preserve competition in the health insurance industry,” American Medical Association President Andrew W. Gurman said in a statement. "Competition, not consolidation, is the right prescription for health insurance markets."

In addition, the end of Anthem-Cigna and of Aetna-Humana have sent a message to others in the payer industry: The federal government will go after you if you want to merge with a close competitor. The Department of Justice (DOJ) antitrust lawsuits, however, were originally brought under President Barack Obama's administration.

In July 2016, the DOJ’s antitrust division and several states challenged both of the proposed megamergers due to concerns with how the combined companies would increase prices to consumers, dampen competition and hinder innovation efforts.

U.S. District Judge Amy Berman Jackson ruled in favor of the DOJ in February, but then Anthem seemed on a winning streak for a while.

A Delaware judge granted Anthem a temporary restraining order against Cigna in February, the Court of Appeals granted its request for an expedited appeal and President Donald Trump announced he had picked longtime Anthem lobbyist Makan Delrahim to head the DOJ’s antitrust division.

The tide turned quickly in the past few weeks, though. Anthem was unable to extend the restraining order by 60 days, the Court of Appeals upheld the ruling that blocked the merger and Delrahim said he would recuse himself from any Anthem/Cigna-DOJ litigation.   

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