Cigna announced on Tuesday that it has exercised its “right to terminate” its pending $54 billion merger with Anthem and filed a lawsuit against the company, seeking at least $13 billion in damages in addition to the $1.85 billion contractual breakup fee.
On Wednesday, Anthem announced it is seeking a temporary restraining order against Cigna to stop it from terminating the merger.
- Earlier this week, Anthem filed a motion with the District of Columbia Court of Appeals requesting an expedited appeal process to overturn the federal judge’s recent decision to block the merger in an antitrust case brought on by the Department of Justice in July 2016.
Cigna broke up with Anthem on the same day that Aetna and Humana announced they had mutually agreed to end their plans for a $37 billion merger. Aetna CEO Mark T. Bertolini said “both companies need to move forward with their respective strategies in order to continue to meet member expectations.”
The breakup between Anthem and Cigna wasn’t expected to be harmonious. The two companies had been bickering in court for months and they accused each other of breaching their agreement.
“Cigna is disappointed in the outcome of this process,” the payer stated in an SEC filing. It “believed from the outset that the merger of the two companies had the potential to expand choice, improve affordability and quality and further accelerate value-based care."
U.S. District Judge Amy Berman Jackson ruled the deal would likely lead to higher prices for consumers, eliminate the companies' "competition against each other for national accounts," and hinder innovation efforts in the insurance market.
Anthem and Cigna are not the only insurers facing a lawsuit after their merger plans fell through. Aetna’s shareholders filed a class action lawsuit against the payer after its deal with Humana was blocked in court, arguing they lost more than $1 billion because its stock prices were artificially high.
Cigna's stock per share dipped rapidly on the news of the failed merger after steadily rising through the day. At press time, Cigna's share closed at $146.62 with a daily high of $148.06 after starting from $145.22.
With the public bickering and knowledge that the merger could be blocked, the insurance giants have been careful to maintain multiple paths forward.
Pending the legal actions over the merger breakup, the insurers could turn their attention to new merger and acquisition opportunities. In a meeting with investors last year, Cigna CEO David Cordani signaled concern with the merger by saying the company had a Plan B ready if there were problems, including stock buybacks and exploring other acquisitions. Cordani noted earlier this month on a Q4 earnings call that the insurance giant could have up to $14 billion of capital on hand in 2017 that could be used for future M&A activity. Meanwhile, Anthem said it may pull out of the ACA exchange markets for 2018 after third quarter profits were down almost 6%.
The Justice Department's success in blocking both the Cigna-Anthem and Aetna-Humana megamergers puts up a major roadblock to future consolidation plans, at least among the "Big Five" insurers. However, analysts say that continued efforts to reform toward more value-based care models incentivizes companies to work together and increases the desire for mergers.