CI Cigna Group

By Anna Wilde Mathews and Brent Kendall 

Two health-insurance mergers worth a combined $82 billion are unraveling in the wake of court rulings that found the transactions violated federal antitrust law, all but quashing a deal boom that would have reshaped the industry.

Aetna Inc. and Humana Inc. said Tuesday they would terminate their $34 billion merger agreement instead of attempting to appeal a judge's decision last month that their combination would harm senior citizens.

Just hours later, Cigna Corp. said it was calling off its $48 billion merger agreement with Anthem Inc. and pursuing litigation seeking a $1.85 billion breakup fee plus more than $13 billion in damages from its deal partner.

Cigna's announcement escalated a monthslong fight in which the two companies have accused each other of violating their merger agreement. Anthem immediately disputed Cigna's authority to nix the deal.

"Anthem will continue to enforce its rights under the merger agreement and remains committed to closing the transaction," an Anthem spokeswoman said.

Anthem has said it unilaterally extended the merger agreement through April 30 and is appealing the antitrust decision, but it faces numerous obstacles to salvaging the transaction.

The fate of both deals represents a victory for the Obama administration's antitrust officials, who were able to win the cases despite major differences between the two transactions.

In the Aetna case, a judge in January said the merger could harm seniors who buy the private Medicare plans known as Medicare Advantage. The Anthem antitrust decision by a different judge last week focused closely on that acquisition's potential impact on large, multistate employers that offer health coverage to their workers.

Both acquisitions came together amid an insurance-industry merger frenzy in 2015, but the dynamics in each have been different.

Aetna and Humana presented a more united public front. The companies' tandem announcements of the termination Tuesday said it was a mutual decision, and both said Aetna will now owe Humana a $1 billion breakup fee.

Aetna Chief Executive Mark T. Bertolini said Tuesday "both companies need to move forward with their respective strategies in order to continue to meet member expectations."

Though the decision allows the two insurers to avoid what had been widely seen as an uphill battle to preserve the deal, it also leaves them with challenges as they move ahead as stand-alone companies.

Aetna will now need to find new engines for growth, and it has highlighted hopes for Medicare, Medicaid and its core commercial franchise. The Humana deal would have vaulted it to the top position in the growing Medicare Advantage business.

Humana said Tuesday that the breakup fee is worth about $630 million after taxes. In a call with analysts to discuss its 2017 financial guidance, Humana Chief Executive Bruce Broussard said his company was "confident in our future."

The company is seen as an attractive takeover target once again, and Mr. Broussard said Humana was "always oriented toward the most effective shareholder value, and we would obviously review any kind of interest into the organization."

Humana, which had retreated somewhat from the Affordable Care Act's exchanges this year after losses, also said it would fully withdraw from the business in 2018. Mr. Broussard said the insurer was "seeing signs of an unbalanced risk pool" in its 2017 enrollment.

That decision is an early difficult sign for the Trump administration, which, while critical of the Affordable Care Act, is expected to issue a regulation that includes efforts to stabilize the law's insurance marketplaces into 2018.

For its part, Anthem faces challenges in its solo effort to appeal the antitrust ruling. Even if it is able to keep Cigna in the fold until the end of April, that is almost certainly not enough time to clear the various legal and regulatory hurdles the insurer must overcome to complete a deal.

Cigna said in a statement Tuesday that the merger "cannot and will not achieve regulatory approval" and that "terminating the agreement is in the best interest of Cigna's shareholders."

The insurer said its lawsuit seeking billions of dollars in damages from Anthem includes "the amount of premium that Cigna shareholders did not realize as a result of the failed merger process." Cigna said it filed the lawsuit in the Delaware Court of Chancery.

Cigna's move is the latest twist in the increasingly discordant relationship between the two merger partners, including battles over strategy, direction and leadership that have become increasingly public over the past several months.

Analysts have long said litigation between the two appeared likely in the event of a negative antitrust ruling. During trial proceedings that began in November, Anthem mounted a legal defense of the merger single-handedly. Cigna lawyers said very little during the proceedings, and when they did, it usually didn't help Anthem's position.

Cigna said Tuesday that Anthem had breached their agreement by not using its "reasonable best efforts" to win regulatory approval for the deal.

Anthem declined to comment Tuesday beyond its statement disputing Cigna's right to break off the merger of the two insurers.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Brent Kendall at brent.kendall@wsj.com

(END) Dow Jones Newswires

February 15, 2017 02:47 ET (07:47 GMT)

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