By Brent Kendall and Anna Wilde Mathews
WASHINGTON -- A federal judge, in a Wednesday evening decision,
blocked health insurer Anthem Inc. from acquiring rival Cigna
Corp., the second court ruling in recent weeks to deal a decisive
rebuke to efforts to reshape the industry through megamergers.
The decision, by U.S. District Judge Amy Berman Jackson, said
the proposed $48 billion deal violated federal antitrust law
because it would create an unacceptable reduction in the number of
companies able to serve large multistate employers that insure
their workers.
"The evidence has also shown that the merger is likely to result
in higher prices, and that it will have other anticompetitive
effects: it will eliminate the two firms' vigorous competition
against each other for national accounts, reduce the number of
national carriers available to respond to solicitations in the
future, and diminish the prospects for innovation in the market,"
Judge Jackson wrote.
The ruling echoed a decision last month by a different judge who
blocked Aetna Inc.'s plans to take over Humana Inc. Though the two
proposed insurer combinations were different in many ways, the
message from the courts was similar: Judges found that merging top
industry rivals threatened to harm consumers on price and service,
with the benefits of those deals failing to outweigh the
threats.
While Aetna is considering a possible appeal in its case,
Wednesday's ruling almost certainly kills the Anthem-Cigna
transaction, as discord between the companies has grown
considerably since they announced their deal in July 2015.
An Anthem spokeswoman said the company was reviewing the ruling
and had no immediate further comment. In a statement, Cigna said it
"intends to carefully review the opinion and evaluate its options
in accordance with the merger agreement."
At the deal's inception, the insurers said their marriage would
create a diversified, innovative and more efficient health insurer.
But the two sides' relationship soured over time as they clashed
over leadership styles and visions for the future.
The companies squabbled during the Justice Department's review
of the transaction and eventually accused each other of violating
the merger agreement.
By the summer of 2016, merger integration planning between the
two companies had stopped, and during trial proceedings that began
in November, Anthem mounted a legal defense of the merger
singlehandedly. Cigna lawyers said very little during the
proceedings, and when they did, it usually didn't help Anthem's
position.
Judge Jackson in her ruling called the rift "the elephant in the
courtroom."
"Anthem urges the court to look away, and it attempts to
minimize the merging parties' differences as a 'side issue,' a mere
'rift between the CEOs.' But the court cannot properly ignore the
remarkable circumstances that have unfolded both before and during
the trial," the judge wrote.
Judge Jackson's ruling may open up a new chapter of hostilities,
especially because the merger agreement calls for Cigna to receive
a $1.85 billion breakup fee from Anthem if the deal dies.
Anthem has said it unilaterally extended the deal's termination
date to April 30, but Cigna said in a recent filing that it had
"made no determination with respect to Anthem's notice seeking to
extend the termination date" of the deal, and its options include
terminating the merger. Now, it may push back against Anthem's
effort to keep it in the fold.
Obama administration antitrust enforcers at the Justice
Department filed simultaneous lawsuits last July to block the
Anthem and Aetna transactions. The court rulings blocking both
deals cement the Obama team's antitrust record of aggressive
enforcement that led to the demise of potentially market-changing
mergers in a host of industries.
Brent Snyder, the acting head of the Justice Department's
antitrust division, said Wednesday's decision was "a victory for
American consumers" that protects "the competition on which they
rely."
Health insurers found themselves swept up in the fever of the
recent merger boom. In 2015, the industry's major players engaged
in a deal dance that ended up with four of its biggest companies
paired off in ambitious bids to create a pair of behemoths with
more than $100 billion in annual revenue. Both proposed new
companies would still have been smaller than UnitedHealth Group
Inc., however.
The Justice Department had serious concerns about the rumored
insurance mergers before they were even officially announced. The
insurers were aware of these concerns but hoped they could overcome
them.
With Wednesday's ruling, it was clear the gamble didn't pay
off.
Now the insurers face a landscape transformed by the recent
Republican sweep into power. The Affordable Care Act could be
repealed and reshaped, while the Trump administration's antitrust
approach may prove different from that of Obama officials. Analysts
are already speculating that new managed-care deals may arise,
perhaps even involving new configurations among the four would-be
merger partners.
Anthem Chief Executive Joseph R. Swedish is likely to face
pressure from investors to quickly show how he will move forward
and generate growth. The final death of its Cigna deal would leave
the insurer lodged firmly behind UnitedHealth Group and still
lacking its own national platform for commercial insurance, the
type sold to employers and individuals.
In addition to a possible legal tussle with Cigna, Anthem faces
ongoing, high-stakes litigation with pharmacy-benefit manager
Express Scripts Holdings Inc.
Anthem has struggled with its business on the ACA exchanges,
where there may be even more instability and uncertainty as
Republicans struggle to shape an alternative. Anthem has the
largest ACA business of any of its peers among the big publicly
traded insurers, and so far has retained it while others have
reduced their exposure amid losses. The company has said it would
consider pulling back next year if the marketplaces don't
improve.
Cigna, for its part, would remain the smallest of the major
publicly traded insurers, with total revenue of $39.7 billion in
2016. The deal would have brought it advantages of scale, including
cost savings and a likely greater ability to win favorable deals
from health-care providers.
Cigna Chief Executive David Cordani has said that if the Anthem
deal didn't go through, Cigna could have as much as $14 billion in
cash and borrowings to deploy. He has said the company's priorities
include evaluating "strategic M&A," with interests including
Medicare and international business, and returning capital to
shareholders. .
Write to Brent Kendall at brent.kendall@wsj.com and Anna Wilde
Mathews at anna.mathews@wsj.com
(END) Dow Jones Newswires
February 09, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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