CI Cigna Group

By Brent Kendall and Anna Wilde Mathews 

WASHINGTON -- A federal appeals court on Friday declined to allow health insurer Anthem Inc. to acquire Cigna Corp., affirming a trial judge's recent ruling that blocked the deal on antitrust grounds.

The decision is another major legal blow to Anthem's effort to salvage a $48 billion transaction that already was on its last legs.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit, in a divided ruling, rejected Anthem's argument that the trial court had failed to sufficiently weigh the company's claim that billions of dollars in cost savings would flow from the merger.

"The district court reasonably determined Anthem failed to show the kind of extraordinary efficiencies that would be needed to constrain likely price increases in this highly concentrated market, and to mitigate the threatened loss of innovation," Judge Judith Rogers wrote for the majority

Anthem and Cigna agreed to the deal in July 2015. The Justice Department spent a year reviewing the proposed merger before filing an antitrust lawsuit to challenge it.

The appeals court was reviewing a judgment by U.S. District Judge Amy Berman Jackson in Washington, D.C., who held a month-long trial at the end of 2016 and ruled against Anthem in February. Judge Jackson found the merger would unlawfully suppress competition among large health insurers, harming multistate employers that already have only a few competing choices when insuring their workers.

The litigation has played out amid acrimony between Anthem and Cigna. The companies had been feuding even before the Justice Department filed its lawsuit, with each company eventually accusing the other of violating the merger agreement.

After Judge Jackson blocked the deal, Cigna and Anthem sued each other in Delaware state court, where litigation continues. Cigna tried to terminate the transaction in February but a Delaware judge barred the company from doing so.

A hearing is scheduled for May 8 in the Delaware court, where Cigna again will seek to opt out of the deal. Anthem has tried to prevent the smaller insurer from walking away.

Cigna said in a regulatory filing that it was continuing to work through the litigation process, and a spokesman declined to comment beyond the filing.

An Anthem spokeswoman didn't immediately respond to a request for comment. In a call earlier this week with analysts, Anthem Chief Executive Joseph R. Swedish said that how the Delaware court evaluated the situation would depend on the outcome in the antitrust appeal, and the company would "have to judge our go-forward position based on the decision of the appeals court." He said then that Anthem remained committed to the deal.

The latest blow to Anthem's efforts to resuscitate the merger is likely to turn the focus to the $1.85 billion breakup fee that Cigna could be due to receive under the terms of the deal. Cigna, in its Delaware lawsuit, seeks that fee as well as more than $13 billion in damages from its partner, which it alleges violated the terms of their deal. Anthem, for its part, has argued that Cigna sought to sabotage the deal, and its lawsuit also is claiming the right to monetary damages from its merger partner.

Analysts have speculated that Cigna could use any money it receives from Anthem, along with a substantial cash hoard it has already accumulated, to engage in new deal-making of its own, potentially eyeing newly single Humana Inc., which saw its own deal to be acquired by Aetna Inc. blocked in court on antitrust grounds.

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

(END) Dow Jones Newswires

April 28, 2017 14:07 ET (18:07 GMT)

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