Judge rules Anthem, Cigna can't recover damages over botched merger
The judge critiqued both companies' handling of the agreement, but ultimately barred either from obtaining damages from the other.
Health insurance giants Anthem and Cigna will have to handle their own costs associated with a failed merger, the Delaware Court of Chancery ruled Monday.
In a 311-page memorandum opinion that referred to the companies’ merger agreement and subsequent legal proceedings as “star-crossed” and a “battle for power,” Vice Chancellor J. Travis Laster gave each company a partial win by ruling in their favor on certain claims, but ultimately barred either from obtaining damages from the other.
The two companies, which at the time were the second- and third-largest health insurers in the United States, in 2015 set up a merger agreement that would have created the largest health insurance company in the nation. The U.S. Department of Justice ultimately blocked the merger, reasoning it would have anticompetitive effects.
Related: Anthem and Cigna set for court fight to save $48 billion merger
Cigna filed its Court of Chancery case in 2017, seeking to establish its right to terminate the merger. Anthem responded with another Court of Chancery lawsuit, and the two cases were consolidated into the damages action that Laster ruled on Monday.
The merger agreement included several covenants that required both companies to put forth efforts to meet agreement conditions and avoid legal obstacles as much as possible to make sure the deal closed. Each of the companies argued the other violated one of the covenants in the merger agreement. Anthem asked for $21.1 billion in damages from Cigna, while Cigna sought $14.7 billion in damages and a $1.8 billion reverse termination fee from Anthem.
Though the opinion critiqued both companies’ handling of the agreement, Laster wrote Anthem took appropriate steps to pursue the deal’s closing, while Cigna intentionally tried to derail it.
According to the opinion, tensions between Anthem and Cigna rose in 2015 and 2016 when Anthem acted as an acquirer while planning integration, rather than as one of two equal companies in a merger. Cigna undertook efforts to block the deal, including withdrawing from integration planning and carrying out a covert communications campaign referred to as “Project Alpha.” Cigna CEO David Cordani also gave testimony beneficial to the Department of Justice’s case throughout the course of its antitrust litigation, which Laster wrote was done intentionally to block the merger.
“The parties’ positions became increasingly adversarial, and the Cigna (executive leadership team) turned definitively against the Merger,” Laster wrote. “There is no signpost marking exactly when this happened, but by late March and early April 2016, the Cigna ELT wanted the transaction to fail so they could continue managing Cigna as an independent company.”
A total of 4,611 exhibits and 111 deposition transcripts were introduced in the case, which culminated in a 10-day trial. Laster wrote the matter was additionally complicated because it involved much of the information from the Department of Justice’s investigation and litigation, though the two companies ultimately only agreed to 187 stipulated facts, none of which concerned the time period in which their relationship deteriorated. Additionally, multiple witnesses had significant credibility issues, Laster wrote.
Laster determined Anthem proved that Cigna’s breach of a covenant made the merger less likely to be approved under the condition that there be no injunctions in place in order for the deal to go through. He also found Cigna proved that even if it had fulfilled its obligations under the covenant it violated, the Department of Justice would still have proceeded with its antitrust litigation, which still would have led courts to enjoin the merger.
However, Laster wrote that because Cigna’s breaches of the covenant were “so strikingly egregious,” Anthem would have proven Cigna willfully breached the contract if those breaches resulted in damages.
“This outcome leaves the parties where they stand. Neither side can recover from the other. Each must deal independently with the consequences of their costly and ill-fated attempt to merge,” Laster wrote.
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