Cigna and Anthem have battled for nearly two years, each seeking billions of dollars in damages in a bitter breakup after a failed merger. Now a chancery court judge in Delaware is about to decide who walks away with the money.
That decision by Delaware Chancery Court Judge Travis Laster is expected to roil the industry and could have a huge impact on Bloomfield-based Cigna, which could either receive a windfall as large as $16 billion or be required to pay Anthem, based in Indianapolis, Ind. as much as $20 billion.
Laster has authority to decide who wins the case, and how much the loser must pay.
Anthem, with about 40.2 million customers, is the nation’s second-largest health insurer, behind United Healthcare. Cigna is the fourth-largest, with about 16 million customers.
Larry Hamermesh, executive director of the University of Pennsylvania’s Institute for Law and Economics and an expert in Delaware corporate law, said each insurer is large enough to be able to handle whatever Laster decides it should pay.
“I imagine they could handle it, but it will be more than the change in the till,” Hamermesh said.
That is unless Laster decides that neither Cigna or Anthem deserve anything.
“He could say ‘a pox on both your houses,’ which wouldn’t surprise me in this case where both sides are shooting for the moon,” Hamermesh said.
The court proceedings peeled back the curtain on the disintegrating relationship between the insurers during the nearly two-year effort to merge. What began as a mutually agreed-upon merger morphed in such a way that it looked more like a hostile takeover.
Cigna and Anthem, a Blue Cross and Blue Shield Association licensee in 14 states, decided to merge in 2015. But the Justice Department opposed the merger, saying the marriage would restrict competition and result in higher premiums and poorer heath care. A federal appeals court agreed, with Supreme Court Justice Brett Kavanaugh, then a judge serving in that court, the only dissenter.
The merger agreement included a $1.85 billion “breakup” fee, payable to Cigna, if the ill-fated $54 billion deal collapsed. But in the bitter aftermath of the courts’ decisions, Cigna decided it deserved more — a lot more.
In early 2017, Cigna sued in the Delaware chancery court, arguing it is owed more than $16 billion as the injured party. Anthem countered it is owed $20 billion because Cigna sabotaged the deal.
The two-week trial based on the competing claims ended last week.
‘Cut us off at the knees’
During court testimony, Anthem lawyers alleged Cigna CEO David Cordani privately expressed regrets about agreeing to merge with Anthem, despite publicly backing the deal because it would be good for the company’s shareholders.
At the time of signing their deal, Anthem agreed to pay Cigna’s shareholders a premium of 38.4 percent, or $13.4 billion.
The deal also called for then-Anthem CEO Joseph Swedish to claim the top spot in the merged companies.
Anthem lawyers argued in court that Cordani wanted to remain in charge of Cigna and he, senior management and board members at Cigna decided to sabotage the merger to keep their jobs and capture the $1.85 billion breakup fee.
Cigna “cut us off at the knees,” Anthem Attorney Thomas Zielinski told Laster.
Glenn Kurtz, another Anthem lawyer, said Cigna hired lawyers and consultants to poke holes in the merger, something Anthem was unaware of.
Swedish testified that his company was “truly at war” with Cigna ‘s top brass in 2016 as he fought the Justice Department to keep the merger alive.
“He could say ‘a pox on both your houses,’ which wouldn’t surprise me in this case where both sides are shooting for the moon.”
Larry Hamermesh
Executive Director, University of Pennsylvania’s Institute for Law and Economics
Meanwhile, Cigna attorneys argued in court that Anthem never intended to fulfill its promises in the merger agreement. They said Anthem wanted to avoid fines for violating Blue Cross/Blue Shield guidelines with a “bias to Blue” strategy that would steal Cigna’s customers. In the guise of promoting the merger, Anthem sought to undermine Cigna’s business by stealing confidential information and harassing its customers, Cigna claimed.
“Rather than promoting consumer choice and fostering the Cigna brand as a competitor to the Blues, Anthem would seek to herd Cigna customers under the Blue umbrella,” Cigna said in its court filing.
Anthem declined comment for this story. But Cigna said it was optimistic it would win the court battle.
“Cigna entered into a proposed merger deal with Anthem with a clear focus on enhancing customer value,” said Cigna spokesman Brian Henry. “Two federal courts and the Department of Justice evaluated the proposed deal, and ultimately chose to block it. We are confident in the judicial process and strongly believe in our case.”
Ted Frech, an economics professor at the University of California, Santa Barbara, said it is rare for Cigna and Anthem to air so much corporate dirty laundry in open court.
“That was a real drawback,” Frech said. “It would have been so much better to have settled or not have revealed so much.”
Hamermesh, of the University of Pennsylvania, said “there’s obviously a lot of incentive to settle the case, but the sheer magnitude of the claims makes it harder to settle.”
Hamermesh also said there were “a lot of personalities” and “a lot of baggage” in the messy insurer breakup that makes the case hard to settle, even though there still may be time to come to an accord.
Laster has 90 days to issue a written opinion – but he could come to a decision earlier than that.