Cigna moves to terminate merger with Anthem and seeks $14.8 billion

Health insurer Cigna Corp. announced Tuesday that it will unilaterally terminate its $54-billion merger agreement with Anthem Inc. after a federal judge rejected the deal. The news came hours after insurance giants Aetna Inc. and Humana Inc. announced a mutual decision to abandon their $37-billion merger agreement.

An Anthem spokeswoman said the company is still committed to closing its deal with Cigna, signaling that the breakup could be messy. In a news release, Cigna announced it had filed a lawsuit in Delaware Chancery Court against Anthem seeking a judgment that the merger agreement had been terminated lawfully and seeking a $1.85-billion termination fee, along with $13 billion in damages.

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

Anthem spokeswoman Jill Becher said that Cigna's action was invalid and that the company "does not have a right to terminate the agreement."

"Anthem will continue to enforce its rights under the merger agreement," Becher said.

The dissolution of the Aetna-Humana deal is proceeding more smoothly. Last month, a federal judge upheld the Justice Department's decision to block that deal. Aetna will pay Humana a $1-billion breakup fee, the companies said, which will amount to about $630 million after taxes.

"While we continue to believe that a combined company would create greater value for healthcare consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction," Aetna Chief Executive Mark Bertolini said in a statement. "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."

Thomas Noland, a spokesman for Humana, said in an email that the company had always known the deal might not go through.

"We have therefore planned carefully for it, and are fully prepared to continue to go forward as an independent company," Noland said.

The two mergers were first proposed in 2015 and could have reshaped the health insurance landscape in the United States by consolidating four of the largest insurers into two companies. Both deals were blocked by the Justice Department on antitrust grounds, and two different federal judges upheld those decisions in the last few weeks.

U.S. District Judge Amy Berman Jackson said the Anthem-Cigna deal would raise prices and eliminate competition between the two insurers for large national accounts — employers buying health plans for more than 5,000 employees.

U.S. District Judge John Bates said the Aetna-Humana deal would have been anticompetitive and raise prices for consumers, specifically in the business of selling private Medicare plans in hundreds of counties and in the health insurance exchanges set up by the Affordable Care Act in three counties in Florida.

The formal conclusion of the Aetna-Humana deal did not come as a surprise; analysts had expected that Aetna and Humana would not appeal the decision.

Scott Fidel, an analyst at Credit Suisse, wrote in a research note that after a trip to Aetna last week, "we came away from the meeting viewing the likelihood of an appeal of Judge Bates' adverse ruling as extremely low, as management conceded that an appeal would likely face a very high hurdle to success." Ana Gupte, an analyst with Leerink Partners, wrote in a note last week that the deal was viewed "as completely dead at this point."

Analysts have speculated that Humana, which is strong in the Medicare Advantage business of selling private Medicare plans, could now be targeted in a future deal by either Anthem or Cigna.

Johnson writes for the Washington Post.

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UPDATES:

3:10 p.m.: This article was updated throughout to add Cigna’s and Anthem’s conflicting perspectives, as well as comments and additional details. 

12:20 p.m.: This article was updated to add that Cigna terminated its proposal to merge with Anthem. 

6:40 a.m.: This article was updated with a comment from  Aetna’s chief executive and additional details.

This article was originally published at 4:40 a.m.

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