Everything You Need To Know About The Cigna/Anthem Deal

The Deal

For the uninitiated, CIGNA Corporation CI, the fourth largest listed health insurance company, and second ranked Anthem Inc ANTM stitched together a deal to merge in 2015 after year-long negotiations.

A Bloomberg report revealed in July 2015 that the companies were nearing a deal, providing for Anthem to buy Cigna in a $48 billion deal. Subsequently, in the same month, the deal was announced. Incidentally, the deal was announced close on heels of an announcement by Aetna Inc AET to buy Humana Inc HUM for $37 billion, with the former being the third largest nation insurer and the latter the fifth.

Humana–Aetna Deal Blocked

The Aetna–Humana deal, despite receiving the blessings of most states and the shareholders of both companies, hit rough weather after the Department of Justice filed a lawsuit to block the merger in July 2016. As recently as this month after the final hearing, Federal Judge John Bates ruled to block the deal on anti-trust grounds.

In response, Aetna said it is reviewing the opinion and would seriously consider appealing the ruling.

Seeking Debt To Finance Deal

Turning to the Cigna–Anthem deal, Aetna reportedly got commitments for $26.5 billion of debt to buy Cigna. A filing with the SEC in May 2016 revealed that Cigna said the deal may close in 2017 rather than the originally planned 2016 closure time, due to the complexity of regulatory process. However, Anthem expressed confidence in closing out the deal in 2016.

Internal Squabbles

Meanwhile, trouble brewed internally. According to Wall Street Journal reports, internal squabbles between both companies could derail the deal. The companies reportedly accused each other of violating the merger agreement and fumbled with submissions to regulator. The issue that created friction was Anthem's lawsuit against Express Scripts for overcharging it for drugs. At that time, Cigna felt the deal would hurt the prospects of regulatory approval and the combined value of the company.

California, Connecticut Oppose

In June 2016, California objected to the Cigna–Anthem deal, as it urged federal officials to block the deal for bring anti-competitive and harmful to consumers. Later in the same month, the Wall Street Journal reported that anti-trust officials are concerned about the deal and were not sure if the companies can offer enough concessions to maintain competition in the industry.

The deal faced opposition from Connecticut State Attorney General George Jepsen in July. This was a major setback, as Cigna was based in Connecticut, and so it was necessary for the deal to receive the approval of the State authorities. In the same month, Bloomberg reported that both Aetna–Humana and Cigna–Anthem deals would be contested in the court by anti-trust authorities.

DoJ Opts To Contest

When the development was confirmed on July 21, both Anthem and Cigna released press releases, terming the DoJ action as unfortunate. In late July, Anthem revealed to analysts that it is preparing to fight the government's move to block the deal. Meanwhile, Anthem requested John Bates, the judge appointed to try the case in August to expedite the trail so that the ruling on the deal could come through before the end of the year. The company also wanted to the lawsuit to be tried separately from the Aetna-Humana trial.

Ruling Set For End-January 2017

Heeding to the plea, Amy Berman Jackson, the U.S. District Court for the District of Columbia, was appointed to try the case after Bates asked that it be reassigned. The trail date was set for November 21, with the ruling set for the end of January, later than the year-end 2016 sought for by Cigna–Anthem.

Jackson said in October that she was considering to split the trial into phases, hearing the impact of the merger on the national market in one phase and on the local market in a second phase. In November 2016, Anthem said it would trim its participation in individual Obamacare exchanges in 2018 and go with a market-to-market strategy based on its profitability in 2017.

Deal To Be Blocked?

The first phase of the trial was completed in December 2016. On January 19, Anthem said it extended the deadline for the completion of its Cigna buyout to April 30, regardless of the outcome of the ruling. The trail, which began in November 2016, ended on January 4. A New York Post article reported that the proposed merger may be blocked, citing multiple sources.

Thus, it looks like the Cigna-Anthem deal is going the Aetna–Humana deal way, and the coming days will confirm if Anthem could successfully close its deal to buy Cigna by the April 30 deadline, although the possibility looks remote.