Anthem Finally Walks Away From Cigna Merger, Seeks Charges

Anthem Inc. (NYSE:ANTM) has officially terminated its merger with Cigna Corp. (NYSE:CI) . This development came after the Delaware Chancery Judge refused Anthem’s request last week to hold back Cigna for another 60 days.

In January, Anthem postponed the merger date to April end to buy time. The company had hopes of the merger materializing under the Trump administration and planned to seek a quick appeal of the court decision that blocked it.

In February, Cigna filed a suit in Delaware Chancery Court asking to be freed from the deal and sought $1.85 billion of termination fee and $13 billion in other charges.

There was always a friction between the companies, with each blaming the other for the deal breakup. The fight has now reached a stage where the focus is on the breakup fee.

Anthem and Cigna were already in a rough patch. Since the very beginning, Anthem continued its pursuit of Cigna by creating pressure on its board members despite the latter’s repeated rejection of the takeover proposal.
Anthem was also ready to go public with its proposal offer if Cigna did not give consent to the deal. With time, the differences between the two companies have broadened and now the fight is in the open.

Since the announcement of the merger, shares of both Anthem and Cigna have underperformed the Zacks categorized Health Maintenance Organization industry by generating returns of 17.6% and 24%, respectively, compared with the sector’s gain of 31.8%. The share price performance of each of the players reflects the pessimism that surrounded their stocks following the merger-related uncertainty and investor perception that they may finally be blocked.

Anthem also charged Cigna for its coldness toward the merger and has alleged that its ways were aimed at sabotaging the deal. Anthem pointed out that Cigna’s conduct at each stage of the merger, right from its integration efforts to the appeals, reflected its reluctance to pursue and seal the deal.
Anthem blamed the company of improper use of its rights to terminate the merger. Therefore, per Anthem, Cigna is not entitled to a termination fee. Anthem on the other hand will charge Cigna of the massive damages it has suffered because of the non-completion of the deal.

Recently, another mega merger of Aetna Inc. (NYSE:AET) with Humana Inc. (NYSE:HUM) was also terminated and the termination fee was duly paid to the concerned party.

Both Cigna and Anthem carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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