When Mergers go Horribly Wrong
2017 is proving to be the year of the failed Health Insurance Merger. These Insurance Behemoths are being blocked by Federal judges, siting Anti-Trust laws. Several organizations, most notably, the American Medical Association have even petitioned against these mergers with concerns over a lack of consumer protection as a result of reduced competition. We did see Kaiser Permanante acquire local Washington HMO, Group Health officially on February 1st of this year. In that instance, neither organization was competing against one another as Kaiser didn’t have a footprint in Washington within Group Health’s service area and that seems to be the overarching sticking point in these decisions.
There is a lot of money at stake when these mergers go horribly wrong. While the circumstances of each of the following failed mergers are similar, the reactions by each carrier are drastic.
Aetna and Humana
In January, a federal judge ruled against the proposed acquisition of Humana by its larger rival, Aetna. This coming on the tail of a lawsuit filed by President Obama’s Justice Department, attempting to block the acquisition by alleging that merger would hurt competition in the health care market, leading to higher prices for consumers and fewer options, specifically for Medicare patients. As a result, Aetna and Humana called off their planned merger, with Aetna agreeing to pay the $1 Billion fee for backing out of the agreement. Aetna CEO Mark Bertolini issued a statement - “While we continue to believe that a combined company would create greater value for health care consumers through affordability and quality, the current environment makes it too challenging to continue pursuing the transaction.”
There was much speculation regarding Aetna leveraging their position with the Justice Department by reducing their footprint in Individual exchanges throughout the country. Aetna subsequently exited 11-of-the-15 markets they were participating in last year. Just this past month, a few months removed from the Federal Judge’s decision, Aetna pulled out of the remaining four markets.
Anthem and Cigna
Unlike the amicable ending the failed Aetna and Humana merger resulted in, Anthem and Cigna’s break-up is a bit more contentious. Like the aforementioned, their Merger was blocked by in February when a Federal Judge ruled against it, citing anti-trust. Subsequently, a U.S. Appeals court upheld the ruling in April. On May 12th Anthem announced they were ending the merger and not going to pay $1.85 Billion break-up fee. Anthem issued a statement, clearly asserting that Cigna was to blame for the failure:
“Cigna has failed to perform and comply in all material respects with its contractual obligations. As a result, Cigna’s repeated willful breaches of the Merger Agreement and its successful sabotage of the transaction has caused Anthem to suffer massive damages, claims which Anthem intends to vigorously pursue against Cigna.”
Aetna and Humana are walking away from the Merger attempt arm-in-arm - not in the vein that they had hoped, but at least from an imperturbable manner. Whereas, Anthem and Cigna are destined to be locked into court battles for next few months/years determining who was at fault for the merger failure.
Aetna and Humana Mutually Agree to End Merger Agreement. May 18, 2017 http://investor.aetna.com/phoenix.zhtml?c=110617&p=irol-newsArticle&ID=2245780
Anthem Comments on Decision of the Delaware Court of Chancery on Acquisition of Cigna; Terminates Merger Agreement http://ir.antheminc.com/phoenix.zhtml?c=130104&p=irol-newsArticle&ID=2272685