Anthem-Cigna drama shifts to break-up fee, damages

Washington

A FEDERAL appeals court last Friday delivered what is 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 US moved last summer to block their proposed US$48 billion merger. Then in February they sued each other in Delaware, trading accusations of harassment and sabotage.

Cigna claims that it is owed a US$1.85 billion break-up fee and US$13 billion in damages. It says that Anthem tried to undermine its business by stealing confidential information and harassing its customers. Anthem faults Cigna chief executive officer David Cordani, claiming that 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 break-up fee and damages, said Charles Elson, director of the John Weinberg Center for Corporate Governance at the University of Delaware.

Michael Newshel, an analyst at Evercore ISI, said that 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 (Department of Justice) under the new administration - but we think settlement is unlikely," he said in a note to clients after the ruling.

Anthem said that 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 last Wednesday that there were "meaningful opportunities" to complete deal, saying that 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.

US 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 that 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.

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.

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. REUTERS