A suitor turned grudging merger target

Behind the scenes of the months-long Humana acquisition drama, Aetna CEO Mark Bertolini bested Cigna Corp. CEO David Cordani at every turn. Cordani wound up getting very little of what he wanted, including a top job.

The public face of the high-stakes negotiations, whose ups and down were revealed last week in a Humana Securities and Exchange Commission filing, resembled nothing so much as speed dating. It eventually led to the pending marriages between Aetna and Humana, and between Anthem and Cigna.

But one party at the altar received very little of what he sought. Aetna bought Humana for $230 per share—the same price Cigna had offered for the Louisville, Ky.-based managed-care insurer just two months earlier. A few weeks later, Anthem bought Cigna amid a testy airing of grievances that left Anthem CEO Joe Swedish, 64, in the top spot and Cordani, 49, without any assurance he will lead Anthem after Swedish retires.

Those two proposed deals, which still must pass antitrust scrutiny, capped a year of negotiations among the nation's top five insurers. They say they need sufficient scale in a rapidly changing payment environment to make their heavy investments in people and technology for managing the health of their enrolled populations.

UnitedHealth Group began the mating ritual by opening talks with Aetna last August, which led to its $104-per-share offer on Jan. 14.

That was just a day after Aetna's Bertolini told the annual J.P. Morgan Healthcare Conference in San Francisco that his company was prepared for any merger wave.

“It'll take one transaction to tip the whole thing off,” Bertolini said. Aetna rejected UnitedHealth's low-ball offer, calling it unattractive, and began scoping out other options.

Humana had begun its hunt for a partner last October with Cigna, not Aetna, when CEO Bruce Broussard met with Cigna's Cordani to discuss the possibility of combining their companies, according to the SEC filing. Humana later brought on Goldman Sachs as a financial adviser to develop alternative consolidation scenarios. In March, Broussard met separately with Swedish and Bertolini to discuss potential mergers.

Cigna went first by bidding $230 a share in cash and stock for Humana on April 25. Cordani called Broussard twice in early May to pursue the offer. But Humana stalled and decided to open up a bidding war, which eventually sank Cigna's chances of becoming one of the “big three” insurers.

Humana's quest for a higher price suffered a blow over the next few weeks when it stopped the auction for an audit of its Medicare Advantage data, tracking a problem signaled earlier in the year by reports Medicare Advantage members were using hospitals at higher-than-expected rates. Humana resumed negotiations with all parties in mid-June, seeking $240 per share, which Bertolini refused to pay.

The dynamics of the Humana negotiations changed June 20, when Anthem offered to buy Cigna for $54 billion. The two firms had been in talks since last August, but the insurers butted heads over who would sit in the corner office. Cordani demanded he become CEO of the merged conglomerate and not play second fiddle to Swedish.

Cordani told Broussard that Cigna was going to submit another formal bid for Humana despite Anthem's proposal. Four days after Anthem's public offer, Cigna proposed buying Humana for $225 per share, lower than its original offer and lower than Aetna's bid already on the table.

Aetna decided to focus on getting a deal done with Humana and formally ended any takeover discussions with UnitedHealth in late June.

But Bertolini nearly walked away from the deal when Broussard continued to demand a higher price. Bertolini refused to pay $235 per share, the documents said.

For his part, Broussard was miffed by a clause that would have allowed Aetna to back out if Humana received sanctions from the CMS before the deal closed. On June 30, Broussard and Bertolini “terminated discussions,” according to the disclosure.

Cigna's Cordani made one last play for Humana, but the company couldn't match Aetna's $230-per-share offer without changing the structure of cash and stock. Humana's board decided to end negotiations with Cigna on July 2 due to the “uncertainty” of Cigna's proposal. It ran back to Aetna, which agreed to a final deal July 3.

Anthem and Cigna agreed to their deal exactly three weeks later, with a slightly higher price tag. Swedish will remain as CEO, while Cordani will become president and chief operating officer, just as previously proposed.

Anthem has not said if the younger Cordani will lead the Indianapolis-based insurer when Swedish leaves.