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YELLOW ALERT: DOJ Files Lawsuit Challenging
Anthem, Aetna Mergers

On July 21, the U.S. Department of Justice filed lawsuits challenging the proposed mergers between both Anthem/Cigna, and Aetna/Humana.

The Wall Street Journal reported that the lawsuits “are a bold response,” noting that had the deals moved forward, the top five national health insurers would have consolidated into three giant companies, each with revenue of more than $100 billion.

Anthem and Cigna put out separate statements with different tones. Anthem said it will challenge the decision in court “but will remain receptive to any efforts to reach a settlement.” Cigna, meanwhile, was less defensive, saying it is “currently evaluating its options: and adding the acquisition will close in 2017 at the soonest ‘if at all.’”

Aetna and Humana had a joint statement indicating their plans to “vigorously defend” their deal.

Principal Deputy Associate Attorney General Baer said in the July 21 press conference that these are separate cases and investigations but that they have been filed as related because of their impact on the industry which means the same judge would consider them collectively.

Baer also noted that the divestures proposals that Anthem and Aetna put forward (selling off pieces of the business to smaller insurers that lacked brand recognition) were just not acceptable. He said they were inadequate, incomplete and did not solve their primary concern of reduction in competition.

In response to a question about how these mergers would create even a greater lack of competition in the public exchanges of which all four are involved, Baer indicated there was no senior level involvement from HHS or the White House and that this is a law enforcement matter based on the merits.

So what happens next?

In classic lawyer fashion – it depends.  It is highly likely that one of the closing conditions for each merger is that the government has approved the merger prior to closing.  That condition can be waived by the parties.  If they waive it and intend to proceed to closing – which rarely happens – then the government would immediately go to court and ask for a preliminary injunction to stop the mergers.  The government would have to show that it is likely to succeed on the merits and that the issuance of a preliminary injunction is in the public interest.  On the latter, the government will argue that it is the government so by definition anything it seeks is in the public interest and courts generally agree.  So the resolution would come down to the court’s assessment of who is right on the merits.

If the parties do not proceed to closing – which is almost always the case – then the case proceeds through the normal course with the answers to the complaint, motions to dismiss (maybe), lots of fact discovery (almost definitely) and then motions for summary judgment and/or trial.  Antitrust cases are very fact intensive so the proceedings could take a very long time (read – years).

It is likely that there are drop dead dates in the merger agreements that say if there is no closing by x date, then the deal dies.  Based on those clauses, the health insurers may seek an expedited schedule for the process.

In addition to the government proceedings, there also may be breakup fees embedded in the deals that must be paid if the deals do not close. Those can be in the hundreds of millions of dollars.  The insurers also may – and some would argue are even likely to — face derivative lawsuits filed by shareholders asserting that the boards violated their duties by pursuing deals that did not qualify for approval that seek in part to recover the breakup fees.

Click here for the Bloomberg report on the lawsuits, and click here for a press release from New York Attorney General Eric Schneiderman on the subject.

As always, please contact Joel Wood at joel.wood@ciab.com or Joel Kopperud at joel.kopperud@ciab.com with any questions.