Report: Judge To Block Anthem-Cigna Merger

Jan. 20--A Cigna spokesman said Thursday the company had no information about a news report that a federal judge planned to block the Bloomfield insurer's proposed merger with Anthem.

The Department of Justice, along with eight states including Connecticut, sued Anthem in July to block its $54 billion proposed purchase of Cigna. The New York Post reported Thursday, citing sources, that U.S. District of Columbia Judge Amy Berman Jackson "will rule against [the merger] on antitrust concerns."

As of Thursday evening, no decision had been released by the court. A spokesman for the U.S. Department of Justice had no information about a ruling.

The DOJ had concerns that the merger would limit competition in the insurance industry, having a negative impact on consumers, doctors and hospitals. Anthem argued the merger would benefit consumers and "create more options for consumers" along with better prices drug prices and medical services. The result would be lower costs for employers, individuals and customers.

Anthem could appeal the ruling, but it would have to win on appeal and convince 14 states to approve the deal by April 30. The end of April is the deadline for the merger agreement.

Anthem lawyers wrote in August to a federal judge: "Anthem believes that the merger must close by April 30, 2017, or Cigna will declare that it is terminating the merger agreement the next day."

The merger had to be reviewed by several states, including Connecticut. Connecticut suspended its review of the merger when federal antitrust regulators sued last year.

Anthem and Cigna have sparred on multiple issues regarding the merger. Anthem CEO Joseph Swedish testified late last year that Cigna stopped cooperating with merger plans. The lack of cooperation led to Anthem creating a secret team to plan the company's integration, keeping Cigna executives in the dark, according to communications released during the trial.

Cigna could receive nearly $2 billion if the merger falls through. However, analysts say Anthem is unlikely to pay that full break-up fee without a fight.

Ana Gupte, a healthcare analyst at Leerink Partners, said "I'm not sure you can take the entire Anthem break-up fee to the bank, because I think Anthem will probably contest it legally, at least in part," Gupte said -- perhaps by using the threat of an appeal to negotiate the fee lower.

Gupte said it is too early to say if Anthem would appeal a ruling blocking the merger. "The Cigna deal has been kind of hard to get through, and Cigna's clearly not on board," she said. "And so with all the hostility, Anthem may decide to cut their losses."

Even without the full fee, Cigna has billions of dollars on hand, which one analyst characterized as "significant dry powder" for going shopping for other companies.

Anthem's stock price was up 1.14 percent, or $1.68 per share, in mid-afternoon trading.

Minutes after the New York Post report was released, Cigna's stock price dropped sharply, then leapt 4 percent from that low. The price then settled back and ended the day at $144.16 up about 1.5 percent, adding more than half a billion dollars to Cigna's market capitalization.

Anthem's stock price was also up, but less than 1 percent, to $148.11.

The DOJ also sued to block Hartford-based Aetna's $37 billion purchase of Humana. A judge has heard arguments from both sides in the case and is yet to make a ruling.

Jefferies & Company Analyst David Windley wrote that it would be logical for Cigna to make a bid to buy Wellcare, a Tampa-based insurer that focuses exclusively on Medicaid, Medicare Advantage and Medicare prescription drug policies. It has about 3.8 million members. He says the two companies have almost no overlap.

However, he wrote that Cigna might want to buy Humana instead, if the Aetna deal is also blocked. But that would be more difficult, because there is overlap in their Medicare Advantage coverage. But, he said, "not nearly as much" as Aetna and Humana have.

Gupte said Humana would be Cigna's most likely choice for a purchase.

"Not easy, but it's possible," she said.

If that doesn't happen, Gupte suspects Cigna will seek go after a mid-sized insurer, such as Wellcare, Molina or Magellan. Alternately, the company could buy back stock and make smaller acquisitions, such as a foreign company, or a smaller insurer that specializes in Medicare Advantage.

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