A Delaware court ruled Monday that neither Anthem nor Cigna Corp. may recover any damages after they failed to complete their proposed $54 billion merger, which would have created the nation's largest health insurer.
The decision concludes a bitter, yearslong battle between the companies and their top executives, who called off their merger in 2017 after a district court issued a permanent injunction against the deal.
"Neither side can recover from the other. Each must deal independently with the consequences of their costly and ill-fated attempt to merge," the Delaware Chancery Court concluded.
Cigna and Anthem sued each other after their agreement collapsed, both arguing that the other derailed the merger. Cigna sued for $14.7 billion in damages, plus a merger break-up fee of $1.8 billion. Anthem countersued for damages of $21.1 billion.
Vice Chancellor J. Travis Laster wrote that Anthem proved Cigna breached its obligation to try to close the merger by withdrawing from integration planning, opposing divestitures needed to close the deal, resisting mediation and undermining Anthem's defense during the antitrust litigation.
However, Laster said Cigna proved that even if it had tried to close the deal, DOJ would still have sought to block the merger based on its anti-competitive effects and the district court would still have enjoined the marriage. For its part, Cigna failed to prove that Anthem breached any obligations under the merger agreement. Moreover, Anthem's termination of the merger agreement did not trigger a break-up fee, Laster wrote.
An Anthem spokeswoman said the company is satisfied that the court determined Cigna breached its obligation, eliminating its right to a break-up fee. A Cigna spokeswoman, meanwhile, said the company is pleased the court found that Cigna did not cause the merger to fail.
"We continue to strongly believe in the merits of our case, and we are evaluating our options with respect to appeal," she said in an email.
Anthem and Cigna struck a deal to combine in 2015 but the relationship quickly soured. Animosity between the two companies factored into U.S. District Judge Amy Berman Jackson's decision to block the deal in 2017. In her opinion, Berman referred to that animosity as "the elephant in the room."
Monday's opinion in Delaware chancery court offers more details on the infighting and paints a picture of two CEOs who were never on the same page. Laster noted that it was "challenging" to determine what actually occurred. The companies agreed on very little and key witnesses, including Cigna CEO David Cordani and Joseph Swedish, the CEO of Anthem at the time, weren't credible, he wrote.
Cigna and Anthem first began to consider a merger in 2012 but called off discussions multiple times over the years because they felt that Blues Association rules would get in the way, according to Laster's opinion. After Humana told Cigna that it had launched a sale process, Anthem and Cigna restarted their merger talks in 2015. Humana and Aetna later agreed to a merger, which also failed.
Cordani believed that while Anthem would technically acquire Cigna, Cigna would take control of the combined organization. He wanted to be the combined company's CEO, and he also wanted to fetch a significant premium for Cigna's sale.
Ultimately, Anthem paid a premium over Cigna's closing price. Anthem's CEO would serve as the combined company's CEO and chair, but Cigna understood that Cordani would eventually succeed him. Cordani agreed to the deal, but he didn't like it, according to the opinion.
Soon after the agreement was reached, it became clear that the companies didn't view the deal in the same way: "Anthem saw itself as the acquirer; Cigna saw the parties as equals," according to the opinion.
During the integration planning process, Swedish tried to schedule interviews to select the combined organization's new leadership team. That angered Cordani and his team, because they wanted a say in the selection. Swedish and his team saw their anger as a threat to the success of the merger and themselves. They discussed reducing Cordani's responsibilities in hopes that he would leave voluntarily, according to the opinion.
"They knew that Cordani had gained the CEO position at Cigna through a boardroom coup, and they suspected that he would try it again," the opinion reads.
In January 2016, Swedish narrowed Cordani's role. While Cordani would be president and chief operating officer, he would head up the commercial business only, according to Swedish's vision. Cordani also learned that he would not be Swedish's successor CEO, and he left the room, according to the opinion. Cigna began to see Swedish as launching a hostile takeover.
Cigna's leadership team developed a plan dubbed "Project Alpha" to restore Cordani's responsibilities and put him back on the path to being the successor CEO. It didn't go as planned, so Cigna escalated the conflict by withdrawing from integration planning , except for "day one" activities. The disputes continued to intensify and by March 2016, Cigna's leadership team had turned against the merger, according to the opinion.
Meanwhile, Cigna had hired a communications firm called Teneo Holdings to help it craft an alternative narrative to position Anthem as the problem.
"A key part of Cigna's strategy involved documenting flaws in Anthem's approach to the regulatory process so that Cigna later could argue that Anthem's incompetence—rather than Cigna's opposition—led to the deal's demise," the opinion stated.
Even as the regulatory progress was moving along, Cigna began reaffirming its strength as a standalone company to media, investors and customers. Cordani consulted with an investment firm about Cigna's strategic alternatives as its own company, including deals in which it would acquire another company.
The insurers learned in June 2016 that the DOJ opposed the merger. Cigna allegedly refused to work with Anthem on a divestiture plan that would satisfy regulators. Without Cigna's cooperation, potential buyers could not evaluate assets, make an offer or advocate to DOJ, Laster wrote.
A Cigna director testified that Cigna was wary of revealing confidential information to potential buyers. Cigna also objected to its assets being the only ones on the chopping block.
Cigna further undermined the merger during the antitrust litigation, according to the opinion.
DOJ sued to block the merger that July, and when Anthem sought a speedy trial, Cigna allegedly slowed the process down. Cigna also refused to engage in settlement discussions with Anthem and DOJ, according to the opinion.
During discovery, Cordani allegedly helped DOJ's case by saying the merger would damage Cigna and consumer choice outside of the states where Anthem operates. Cigna encouraged DOJ's perception that Cigna was a uniquely innovative company.
Later at trial, Cordani misrepresented the combined organization's strategy and agreed with DOJ that the merger would "destroy the value of Cigna," according to the opinion. The insurer's counsel also sought to discredit Anthem's witnesses, Laster wrote. When Anthem's economist testified about the efficiencies the merged company could achieve, Cigna counsel questioned his credentials and undercut his projections, according to the opinion.
Despite Cigna's actions to undercut the merger, Anthem isn't entitled to any damages because Cigna proved DOJ would have opposed the combination anyway because it would have reduced competition in commercial insurance market for large, national customers, the opinion states. Cigna, meanwhile, isn't entitled to damages because it failed to prove that Anthem breached its agreement. On the contrary, "Anthem sought at all times to complete the merger," Laster wrote.
Finally, Cigna isn't entitled to the break-up fee because by the time it properly terminated its agreement in May, Anthem had already done so.
