EDITORIAL: Setback shouldn’t derail Anthem

May 13, 2017

Anthem Inc. is making a last-ditch effort to salvage its $48 billion purchase of Cigna Corp., asking the U.S. Supreme Court to overturn lower court rulings that the deal is anticompetitive.

Almost no one thinks the high court will side with Anthem, if it even considers the case. But observers think the Indianapolis-based health insurance giant has to leave no stone unturned in order to strengthen its legal hand in the sure-to-come legal fight over whether Anthem must pay Cigna a $1.85 billion breakup fee.

This has been an expensive quest for Anthem even without the fee. The companies paired up in July 2015, and regulatory filings show Anthem already has spent more than $204 million in fees on the bridge loan it arranged to help finance the deal. And then there’s the untold millions Anthem has spent on armies of attorneys.

With the benefit of hindsight, it is tempting to second-guess Anthem, as Bloomberg Gadfly columnist Brooke Sutherland did in February. She noted that pulling the trigger on such a huge acquisition just weeks after Humana agreed to buy Aetna for $37 billion might have increased the scrutiny both deals received from antitrust regulators. Indeed, in each case, the Justice Department sued to block the mergers as anticompetitive and then prevailed in court.

It also was problematic that the deal would have further beefed up Anthem’s presence among national employers, an area of strength for Cigna as well. Companies often sell parts of their business to appease regulators, but national accounts are difficult to carve up. Perhaps that’s why Anthem’s lawyers took the position last fall that they had “no fix to propose” because none was necessary.

Yet we understand why Anthem’s board and management made an aggressive bid for increased scale—and we think their reasoning was well-founded. In fact, we welcome the company’s go-for-it mind-set.

In too many rapidly consolidating industries, Hoosier companies have been the sellers, not the bold, aggressive acquirers with national or international ambitions.

The fact that Anthem vaulted into one of the nation’s largest health insurers is nothing sort of extraordinary—and isn’t the product of happenstance.

In the 1980s, Anthem—then known as The Associated Group—was a sleepy, policyholder-owned health insurer operating only in Indiana. Under the leadership of two visionaries, L. Ben Lytle and then Larry Glasscock, it recast itself into a national powerhouse by scarfing up more than a dozen Blue Cross Blue Shield insurers in other states.

With each of those deals, Anthem’s leaders insisted that the corporate headquarters remain in Indiana, former Anthem General Counsel David Frick told IBJ in 2015.

“Those of us who built the company were really hoping to build a big company here in Indianapolis,” said Frick, who previously was a deputy mayor under Bill Hudnut.

The Cigna deal is the first big Anthem merger that’s gone awry. It’s a disappointment, certainly. But we implore the company’s board and management not to lose their zeal for deal-making. It’s served the company well, and analysts see other potential acquisition targets on the horizon that would further fortify Anthem’s competitive position.•


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