Anthem/Cigna deal in the balance following judgement

April 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The proposed merger of health insurers Anthem, Inc. and Cigna Corporation is in the balance after Anthem won a court ruling which temporarily blocks Cigna’s attempt to pull out of the $48bn deal.

Originally proposed in July 2015, the deal was that Anthem would buy Cigna for $184 a share, which represented a 35 percent premium on Cigna’s share price. Then, in December 2015, the shareholders of both Anthem and Cigna approved the merger. The combination, it was said, would create a premier global health benefits company and lead the transformation of healthcare for consumers by enhancing access, quality and affordability.

However, major cracks in the transaction quickly appeared, with the relationship between the two insurers, a contentious one even before the deal was struck 18 months ago, fragmenting and often involving public disagreements. One of these involved Cigna’s “insistence on uncommon governance demands” – specifically that the combined company should be led by David Cordani, Cigna’s chief executive.

“We were stunned that the Cigna board insists on a guaranteed CEO position for Mr Cordani over choosing to allow its stockholders to realise the significant premium being offered,” commented Anthem chief executive Joseph Swedish. Needless to say, such discord over who would lead the company soon began to permeate other areas of the deal.

At the same time, concerns were being raised over the impact the massive health insurance deal would have on competition and consumer choice, a factor cited by US district judge Amy Berman Jackson when she blocked the merger plan in February 2017, describing it as anti-competitive. “The documentary record and the testimony reflect that the pre-merger integration planning that is necessary to capture any hoped-for synergies is stalled and incomplete,” wrote the federal judge.

The next twist in the tale came when the two companies squared off in court. First up, Cigna sued Anthem for more than $13bn, accusing its would-be merger partner of violating the merger agreement and harming both Cigna and its shareholders. In response, Anthem quickly counter-sued, winning a temporary restraining order in the Delaware Court of Chancery which blocks Cigna from terminating the agreement and taking any action contrary to the terms of the merger agreement.

Looking to reaffirm its commitment to the merger agreement, which has been extended to the end of April, Anthem believes that there is still sufficient time and a viable path toward completing a transaction that, it is claimed, will save millions of Americans more than $2bn in annual medical costs and deliver significant value to shareholders. In addition to filing the lawsuit, Anthem is also pursuing an expedited appeal of the District Court’s decision and is committed to completing this value-creating merger either through a successful appeal or through settlement with the new leadership at the Department of Justice (DOJ).

As far as Cigna is concerned, the company’s obvious efforts to sabotage the merger have been recognised by both the District Court and the US media. The District Court noted that it could not ignore the “elephant in the courtroom”, and the fact that Cigna was “actively warning against” the merger and that “Cigna officials provided compelling testimony undermining” Anthem’s defence. In addition, the District Court noted that it could not overlook “the doubt sown into the record by Cigna itself”.

With Anthem expressing an interest in consummating the merger while Cigna seeks its termination, the ultimate deal breaker is likely to be whether or not the transaction will result in higher prices. Furthermore, with the merger agreement calling for a $1.85bn break-up fee if the deal is not approved, everything points to Anthem and Cigna continuing their fractured relationship back in court.

Fraser Tennant