Aetna-Humana and Cigna-Anthem deals both canceled

February 14, 2017
by Thomas Dworetzky, Contributing Reporter
It has been quite a Valentine's Day for insurance deal breakups.

First the death of the $34 billion Aetna and Humana deal was announced.

Then Tuesday afternoon, Cigna announced that it was ending its Anthem merger, CNBC has reported.

Aetna and Humana agreed to mutually end their relationship and jointly expressed their regrets over the deal's passing.

“We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations,” Aetna chairman and CEO Mark T. Bertolini said, adding that, “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.”

The deal was shot down by a U.S District Court for the District of Columbia ruling that granted the U.S. Department of Justice request to enjoin the merger on the grounds that it violated antitrust laws. In late January, U.S. District Judge John D. Bates held that the merger would stifle competition and hurt seniors looking for Medicare Advantage coverage.

"We had viewed a successful appeal as highly unlikely given the decisiveness of the lower court’s opinion and a DOJ (Department of Justice) settlement as a long shot," Evercore ISI analyst Michael Newshel wrote in a research note according to Reuters.

The court ruling garnered praise from opponents of the merger, notably the American Medical Association.

“Creating even larger goliaths would be unacceptable,” AMA President Dr. Andrew W. Gurman said on the association's blog, adding that “Federal and state officials have a strong obligation to enforce antitrust laws to protect patients by ensuring a competitive marketplace that operates in patients’ best interests.”

Besides paying Humana a $1 billion breakup fee — about $630 million net of tax — Aetna also killed its deal with Molina Healthcare to sell some Medicare Advantage assets, which will lead to undisclosed fees.

In addition to the fees, “in recent filings with the Securities and Exchange Commission, the company said it paid about $775 million in legal and financial fees, most of that money spent on defending the merger in court after the Justice Department filed a lawsuit last summer to try to block it,” according to the Connecticut Mirror.

The Cigna-Anthem breakup was unilateral, and bitter, however. Cigna walked out on its $54 billion deal with Anthem, and is suing for damages.

That deal was blocked in court in early February.

"The evidence has shown that the merger is likely to result in higher prices," U.S. District judge Amy Berman Jackson wrote in the ruling.

"Anthem is encouraging the Court to ignore the risks posed by the proposed constriction in the health insurance industry … on the grounds that consumers might benefit from the large size of the new company in other ways at the end of the day," Jackson said.

Anthem said it wants to give the deal another try. “On January 18, 2017, Anthem extended its merger agreement with Cigna through April 30, 2017. Under the terms of the merger agreement, Cigna does not have a right to terminate the agreement," an Anthem spokesperson told CNBC.

Cigna, however, appears to be seething, which is taking the form of a $1.85 billion termination fee and another $13 billion in damages, according to the Washington Post.

"These additional damages include the amount of premium that Cigna shareholders did not realize as a result of the failed merger process," the company said according to the paper. "The company believes strongly in the merits of its case and hopes that this matter is rapidly resolved."

Anthem disputes the breakup. Its spokeswoman Jill Becher fired to the Post that "Anthem will continue to enforce its rights under the merger agreement."