Aetna-Humana deal dies; Cigna, Anthem duke it out
Two U.S. health insurance giants reached a peaceful Valentine’s Day ending of their planned multibillion-dollar union, while two others appeared headed to a court battle over their similar corporate marriage.
Reacting to recent court rulings that blocked both transactions on antitrust grounds, Aetna on Tuesday abandoned its planned $37 billion merger with industry rival Humana in an agreement approved by both companies.
But Anthem and Cigna battled each other over the fate of their planned $48 billion transaction. Cigna filed a court action to scuttle the tie-up and seek legal damages from its deal partner, while Anthem vowed to press ahead.
The developments are the latest corporate fallout from the Obama administration’s decision to challenge corporate mergers on anti-competition grounds and seek to block so-called tax-inversion deals based on contentions they take unfair advantage of tax loopholes and would erode the nation’s tax base.
Hartford, Conn.-based Aetna owes Louisville-headquartered Humana a $1 billion breakup fee. Humana said the payment would amount to $630 million after taxes.
“While we continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction,” Aetna Chairman and CEO Mark Bertolini said in a statement announcing the decision.
Aetna and Humana scrapped their deal after U.S. District Court Judge John Bates ruled in January the transaction was “likely to substantially lessen competition” in certain markets for Medicare Advantage plans and Affordable Care Act options.
Bates’ 156-page opinion ques-
Aetna owes Humana a $1 billion breakup fee. Humana said the payment would amount to $630M after taxes.
tioned the companies’ arguments that the corporate marriage would cut their costs and in turn fuel innovation and lower costs for consumers.
The “proffered efficiencies do not offset the anti-competitive effects of the merger” because it’s likely to “substantially lessen competition” in both Medicare Advantage markets and in the public insurance exchanges, the judge ruled.
Anthem and Cigna, the nation’s second- and third-largest health insurers, suffered a similar federal court setback last week when U.S. District Court Judge Amy Berman Jackson blocked their merger.
Ruling in favor of opposition by the Department of Justice, 11 states and the District of Columbia, Jackson wrote that “the proposed combination is likely to have a substantial effect on competition in what is already a highly concentrated market.”
Anthem initially said it would appeal. But Cigna on Tuesday exercised what the company characterized as its right to terminate the deal and seek a $1.85 billion reverse termination fee from Anthem.
Saying it was “disappointed in the outcome of this process,” Cigna said it filed a Delaware chancery court lawsuit seeking more than $13 billion in damages from Anthem to cover the financial premium Cigna shareholders failed to receive as a result of the failed merger process.
Anthem, however, said it would not be left at the corporate altar.
Citing a January action that extended the merger agreement through April 30, Anthem contended Cigna had no legal right to terminate the agreement.
“Therefore, Cigna’s purported termination of the merger agreement is invalid,” Anthem said in a statement that added the company “will continue to enforce its rights under the merger agreement and remains committed to closing the transaction.”
“Anthem is significantly disappointed by the decision,” Anthem CEO Joseph Swedish said in a statement after that ruling.
Other major U.S. mergers blocked as a result of the Obama administration’s opposition include pharmaceutical giant Pfizer’s $160 billion tax-inversion deal with Allergan and top oilfield services firm Halliburton’s $28 billion acquisition of Baker Hughes, the industry’s No. 3 competitor.