15 May 2017Insurance

Cigna and Anthem battle over $15bn damages in failed merger deal

US-based global health service company Cigna Corporation has announced the termination of the merger agreement with insurer Anthem, demanding $15 billion damages but Anthem is unwilling to pay.

Cigna seeks prompt payment of the $1.85 billion reverse termination fee and will pursue claims for additional damages of over $13 billion against Anthem for the harm that it caused Cigna and its shareholders.

Anthem did not appeal the Delaware Court of Chancery’s decision denying Anthem’s motion for a preliminary injunction that sought to prevent Cigna from terminating the merger agreement, according to the statement.

Under the merger agreement, Anthem was required to lead the regulatory approval process and to use its reasonable best efforts to obtain regulatory approval. Cigna claims that Anthem wilfully breached those obligations and as a result the transaction did not receive the requisite regulatory approvals.

Anthem said that it has no intention of paying the $1.85 billion termination fee as outlined in the merger agreement. Anthem counter-sued and intends to pursue damages of its own as the insurer alleges that Cigna actively attempted to sabotage the deal pre-trial, during-trial, and post-trial.

Credit-Sights analysts believe that Anthem has the stronger case, but that a settlement may be the most likely outcome given the risk of litigation for both parties, according to a May 14 analyst report. “At the very least, Anthem clearly put forward a vigorous effort in attempting to close the deal but Cigna, in contrast, actually cross-examined Anthem’s lawyers at one point during the original trial,” the analysts said.

Judge Travis Laster of the Delaware Chancery Court sided with Cigna in allowing it to terminate the merger agreement, but noted that Anthem may have a case in pursuing a breach of contract case against Cigna and that “damages it can recover from Cigna are potentially massive,” according to CreditSights.

Cigna has announced its plan to immediately increase the open market share repurchase activity as a result of the termination of the transaction. The company's board of directors had previously authorised share repurchase of $3.7 billion, and through May 11, 2017, Cigna has repurchased approximately 2.4 million shares of common stock for approximately $360 million. It expects to repurchase at least half of the remaining authorisation by December 31, 2017.

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More on this story

13 February 2017   US health insurer Anthem is appealing against the Department of Justice’s decision to block the proposed merger with its rival Cigna but analysts see little chance of success. Instead, Cigna may look for other potential acquisitions to grow.
26 June 2017   US-based health insurer Anthem has agreed to settle litigation over hacking in 2015 that compromised about 79 million people's personal information for $115 million, which lawyers said would be the largest settlement ever for a data breach, Reuters reported on June 23.
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