$54B Anthem-Cigna Deal Blocked; Investors Couldn’t Care Less

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A US district judge has blocked the $54 billion merger between Anthem (NYSE: ANTM) and Cigna (NYSE: CI) just a few weeks after Aetna’s $37 billion deal with Humana suffered the same fate.

The Department of Justice suit brought against Anthem-Cigna alleged that, if the deal went through, it would substantially reduce competition for millions of consumers who receive commercial health insurance coverage from national employers in the US. In addition, the suit asserted that the elimination of Cigna would result in the loss of “a leader in the industry’s transition to value-based care.”

Now, Anthem owes Cigna a $1.85 billion breakup fee. But investors, it would appear, couldn’t care less.

Stock performance since June 2016


Aetna and Anthem, Cigna and Humana are all sitting at or near six-month highs for their respective share prices. Their stock started to trend up in a big way after the US election in November.

Tensions simmer

The argument that Anthem and Cigna put forward hinged on the basic assertion that their deal would create the kinds of savings through synergies that only a fully integrated, multi-state insurer can provide consumers. The trouble is that assertion rang hollow. Almost as soon as the companies announced their planned merger, they were effectively at each other’s throats, leaving the DOJ ample room to point out that the companies had largely failed to cooperate in integrating their businesses ahead of the tie-up. Indeed, both sides accused each other of violating the terms of their agreement almost as soon as the ink dried.

In May, The Wall Street Journal reported that a series of letters revealed a rift growing between the companies over Anthem’s $15 billion lawsuit accusing Express Scripts of overcharging for prescription drugs. That exchange culminated in September’s DOJ filing that found both Anthem and Cigna had accused each other of breaching the merger agreement.

That wasn’t all, though. Anthem also accused Cigna of failing to submit data to the DOJ on time, which Cigna put down to Anthem’s own trouble getting their documents in order. Most damning for the claim that the companies were working out a smooth integration process: The future role of Cigna’s CEO David Cordani was not clear up front. Originally slated to oversee some but not all of the future operations of the combined company, with the support of Cigna’s board, Cordani pushed back against that arrangement and would eventually secure oversight of all three proposed business units. But the damage was already done—to the deal, that is.

For the moment, however, Anthem and Cigna (as well as Aetna and Humana for that matter) look fine according to their respective bottom lines.

Nevertheless, like Aetna, Anthem vows to appeal the ruling. But that, too, will likely prove fruitless. “While both cases resulted in the transactions being blocked, I don’t see much of a connection between the likelihood of success on appeal between the two,” Andrea Murino, partner and co-chair of Goodwin’s Antitrust + Competition Law Practice, has said. “Each decision stands firmly in the mainstream of antitrust jurisprudence and will be assessed upon appeal independently. While they may buttress each other, I do not expect either Anthem or Aetna to prevail on appeal, but that would have been true even if the other transaction never occurred.”

Anthem’s stock closed up 2% on Thursday at $161.68 per share, with Cigna ending the trading day at $148.14—just above where it opened.

Article by Adam Putz, PitchBook

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