Cigna calls off $48bn Anthem deal; may seek alternative M&A target

US-based global health service company Cigna has called off a proposed merger agreement with Anthem following an order from the US District Court for the District of Columbia and demands more than $14.85 billion compensation from Anthem.

The District Court said that the merger would decrease competition and lessen choice in the “national accounts” market. In light of the Court’s ruling, Cigna believes that the transaction cannot and will not achieve regulatory approval and that terminating the agreement is in the best interest of Cigna’s shareholders.

To effect this termination, Cigna has filed suit against Anthem in the Delaware Court of Chancery. The suit seeks declaratory judgment that Cigna has lawfully terminated the merger agreement and that Anthem is not permitted to extend the termination date. The complaint seeks payment by Anthem of the $1.85 billion reverse termination fee contemplated in the merger agreement, as well as additional damages in an amount exceeding $13 billion. These additional damages include the amount of premium that Cigna shareholders did not realize as a result of the failed merger process.

Meanwhile, Anthem has appealed against the Department of Justice's decision to block the proposed merger with its rival, but analysts see little chance of success.

Industry analysts suggest that Cigna may look for other potential acquisitions to grow after the failed deal with Anthem. “We view the likelihood of success in an appeal as low,” CreditSights analysts wrote in a report. Potential M&A targets include Centene, Wellcare, Molina and Humana, the analysts suggested.

Cigna has already made two bids on Humana shortly before it agreed to the Anthem deal, according to the Department of Justice.

Cigna believes that the two parties entered into the transaction with a plan to create a combined company that would expand patient choice, affordability, and quality in addition to accelerating value-based care. However, according to Cigna, Anthem abandoned this strategy and pursued a plan whereby the Blue Cross Blue Shield Association (of which Anthem is the largest member) and its membership would accrue significant benefits, CreditSights analysts explained in a note. Cigna further argues that since such an action constitutes “willful breach” of the merger agreement, Cigna is entitled to compensation in excess of the $1.85 billion termination fee, according to the note. Anthem, however, has stated that Cigna does not have the right to unilaterally terminate the proposed deal.