Anthem’s latest court loss means Cigna deal is all but dead

Anthem Inc. is pretty much out of chances to hang on to Cigna Corp.

A Delaware judge’s ruling late Thursday that Cigna can walk away from the $48 billion health insurance merger leaves few options for Anthem. While Anthem can still appeal the latest ruling, it’s far more likely that the companies will be left fighting over who’s to blame.

“The only surprise here is that it took so long to reach an ending that the market had long anticipated,” said Michael Newshel, an analyst with Evercore ISI.

Thursday’s ruling means Anthem could be on the hook for $1.85 billion in breakup fees and $13 billion in damages to Cigna, which had argued that its would-be partner was too stubborn to see that the concerns about competition were insurmountable. Anthem has countersued Cigna over the deal’s demise.

Delaware Chancery Judge Travis Laster said Anthem didn’t deserve a 60-day extension of an earlier order barring Cigna’s exit because it was “incredibly unlikely” that the company could close the deal. However, the judge said there was significant evidence Cigna may have violated the merger agreement by dragging its feet on antitrust concerns, which could entitle Anthem to “potentially massive damages.”

Laster gave Anthem until Monday at noon Eastern time to decide whether to appeal his decision. Bonnie Jacobs, an Anthem spokeswoman, didn’t respond to requests for comment by email and telephone.

“The reality is both parties probably have some risk and they’ll bargain for something between zero and $1.85 billion,” said Matt Cantor, an antitrust lawyer at Constantine Cannon.

The loss is the latest for Anthem’s effort to preserve the takeover, which was blocked this year by a federal judge on antitrust grounds. Anthem is asking the U.S. Supreme Court to overturn a ruling finding the deal flawed, though the court is unlikely to weigh in now that Cigna has been allowed to walk.

Cigna seems ready to be done. “We look forward to closing this final chapter,” the Bloomfield, Connecticut-based company said in an emailed statement.

The $48 billion deal’s likely demise frees both Anthem and Cigna to acquire other firms, and it lets Cigna once again determine its own fate.

“That’s the next big question,” said Ana Gupte, an analyst at Leerink Partners. “I think they’ll end up being more acquisitive.”

Cigna Chief Executive Officer David Cordani has estimated that Cigna would have $7 billion to $14 billion of deployable capital by the middle of this year. The high end of that range includes extra debt the company could take on if it decided to make acquisitions, Cordani has said. The funds could also be used to pay dividends and buy back stock.

Anthem, based in Indianapolis, has also said it would pursue deals and buybacks as its “Plan B” if the Cigna transaction didn’t go through. Anthem CEO Joseph Swedish has said he might attempt to use deals to expand in Medicare Advantage, the lucrative business of selling private health plans for the elderly.

There are a plethora of other partners for either company. A takeover of Humana Inc. by Aetna Inc. was also blocked this year on antitrust grounds. Humana, which has a market value of about $33 billion, specializes in Medicare Advantage.

Molina Healthcare Inc., which specializes in the Medicaid health program for low-income individuals, could also be in play, said Les Funtleyder, a health-care investor at E Squared Asset Management. The company’s board ousted the CEO and CFO brothers who long led the firm their father founded.

At the same time, insurers may pause as they wait and see what lawmakers in Washington do with the Affordable Care Act. Republicans are working to gut the law and rewrite insurance rules.

“Everybody will catch their breath, and maybe we’ll revisit some M&A in ‘18 or ‘19 as the rules of the road start to become more clear,” Funtleyder said. “I would be surprised if anybody did anything there for a while.”