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Cigna Wins Judge's Approval to Walk Away From Anthem Merger

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(Bloomberg) — Cigna Corp. can walk away from its $48 billion merger with Anthem Inc., a Delaware judge ruled almost three months after another court blocked the deal as anticompetitive.

The ruling on Thursday means Anthem could be on the hook for $1.85 billion in breakup fees and $13 billion in damages to Cigna, which had argued that its would-be partner was too stubborn to see that the concerns about competition were insurmountable.

(Related: Anthem Loses D.C. Circuit Bid to Revive Cigna Merger)

Delaware Chancery Judge Travis Laster said Anthem didn’t deserve a 60-day extension to an earlier order barring Cigna’s exit because it was “incredibly unlikely,” the company could close the deal. However, the judge said there was significant evidence Cigna may have violated the merger agreement by dragging its feet on antitrust concerns, which could entitle Anthem to “potentially massive damages.”

“The reality is both parties probably have some risk and they’ll bargain for something between zero and $1.85 billion,” said Matt Cantor, an antitrust lawyer at Constantine Cannon.

Laster’s decision may be the final dagger to a deal that has been as notable for the bad blood between the two insurers as its antitrust roadblocks. Anthem is asking the U.S. Supreme Court to overturn rulings finding the deal flawed by antitrust problems, and the court is unlikely to weigh in now that Cigna has been allowed to walk.

Matthew Asensio, a Cigna spokesman, and Bonnie Jacobs, an Anthem spokeswoman, had no immediate comment on the ruling.

Anthem’s Path

The decision makes it virtually impossible for Anthem to salvage the merger. The company must either convince the nation’s highest court to overturn two lower court decisions finding the deal flawed or persuade new leadership at the Justice Department to drop its objections to the union. President Donald Trump has been seen as more friendly to deal-making than the Obama administration, which blocked the Cigna takeover as well as the tie-up of Aetna Inc. and Humana Inc.

Laster gave Anthem until Monday to decide whether to appeal his decision.

Ana Gupte, an analyst at Leerink Partners, said Anthem’s ongoing legal battles were about negotiating over the breakup fee, and it’s not a surprise the company lost. For Cigna, investors will watch whether the company uses its accumulated funds to repurchase shares or strike deals of its own.

“That’s the next big question,” she said. “I think they’ll end up being more acquisitive.”

(Related: Molina Ousts Family Leadership, Sparking Takeover Speculation)

Anthem is likely to pursue smaller deals, Gupte said, based on conversations with management. The company could probably spend as much as $6 billion, she said in a research note to investors on Thursday.

Merger Conflict

The Justice Department’s antitrust division sued in July 2016 to block the Anthem-Cigna combination, arguing it would further consolidate an already concentrated market and lead to higher costs for employers.

U.S. District Judge Amy Berman Jackson in Washington backed the government’s position in a February ruling. The discord between the two companies also undermined their justification for the combination, she said. A federal appeals court in Washington agreed with her finding on April 28.

The conflict between the companies has been evident since last year when the Justice Department made public that the two had accused one another of breaching the contract. Testimony by chief executives at both companies during the antitrust trial underscored their rift.

Cigna’s David Cordani revealed his doubts about the benefits of the merger, and Anthem’s Joseph Swedish disclosed his company had created a secret team to plan its integration while keeping Cigna executives in the dark.

The cases are Anthem Inc. v. Cigna Corp., 2017-114; and Cigna Corp. v. Anthem Inc., 2017-0109, Delaware Chancery Court (Wilmington).

— Read Annuity Issuers Size Up Benefits M&A Market on ThinkAdvisor.


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