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Anthem sues to block Cigna from terminating $48B merger

February 15, 2017

Indianapolis-based Anthem Inc. further escalated its fight with Cigna Corp. on Wednesday morning, announcing it has filed a lawsuit in Delaware that seeks a temporary restraining order to prevent the Connecticut-based insurer from terminating their $48 billion merger.

The suit also blasts Cigna, accusing it of repeated efforts to sabotage ther transaction, a deal Anthem says would be a huge win for consumers and shareholders.

In the release announcing the suit, Anthem said: "Cigna refuses to allow meetings with its senior management team, a necessary step to integration. Cigna also consistently delays producing data, preventing completion of an integration plan."

Anthem added that it "believes that there is still sufficient time and a viable path forward potentially to complete the transaction that will save millions of Americans more than $2 billion in annual medical costs and deliver significant value to shareholders."

Anthem announced in July 2015 that it planned to buy Cigna, creating the nation's largest health insurer, ranked by number of people covered. However, the companies have been bickering privately for months, and those tensions exploded into the public Tuesday as Cigna sued to end their deal and Anthem moments later said it would fight to keep the merger alive.

The clash came just hours after the other U.S. health insurance megadeal, a $37 billion tie-up between Aetna Inc. and Humana Inc., ended peacefully with the companies mutually deciding to walk away from their agreement

Cigna, as part of its lawsuit against Anthem, is seeking a $1.85 billion breakup fee, plus $13 billion in additional damages it says are owed after “the path for regulatory approval of the transaction was fatally compromised” by the larger insurer.

Anthem called the move “invalid” and said it had already extended the time the two companies would have to complete the takeover to April 30. The merger was blocked by a federal judge last week on the grounds that it was anticompetitive, though Anthem has said it would seek an expedited appeal of the ruling.

The fact that the two tie-ups were called off on Valentine’s Day wasn’t lost on analysts.

“Valentine’s Day is turning out to be the day of broken mergers,” Evercore ISI analyst Michael Newshel wrote in a note to investors titled “breaking up is hard to do.”

A settlement between Anthem and Cigna is still “the most likely (and best) outcome,” said the analyst, who recommends holding Cigna stock. “Ultimately we view the latest developments as posturing in what comes down to a legal fight over the breakup fee.”

Tensions between Cigna and Anthem have been evident since before the Justice Department sued in July to stop the merger, which the government said would reduce competition and reduce choice for consumers. At a court hearing in August, an Anthem lawyer said there was “ contentiousness” with Cigna and that the smaller insurer intended to walk away after the deadline rather than extend the effort. 

In her ruling last week rejecting the tie-up, U.S. District Judge Amy Berman Jackson cited the discord between the insurers as “the elephant in the courtroom.” Cigna didn’t join in Anthem’s appeals court filing.

The bad rapport between the insurers stems from even before the deal was struck. Cigna had rejected Anthem’s initial overtures, in part over a dispute about what role CEO David Cordani would have at a combined firm.

The end of the Aetna-Humana transaction, and potentially the Cigna-Anthem merger, leaves some of the U.S.’s biggest insurers free to make new deals or spend billions on buying back their own shares.

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