Anthem, Cigna accusing one another of merger breach, US says

Anthem Inc. and Cigna Corp., the health insurers fighting a U.S. antitrust lawsuit, have accused one another of breaching their $48 billion merger agreement, the Justice Department said in a court filing.

A lawyer for Bloomfield, Connecticut-based Cigna said during a teleconference last month that in-house attorneys for the companies had exchanged letters alleging each violated the deal’s terms, the government said in the filing Wednesday in Washington, D.C. The Justice Department raised the issue as part of a dispute over evidence in its lawsuit against the insurers seeking to stop their merger.

"Governance disputes between defendants have escalated, and the firms are now accusing each other of breaching the merger agreement," the U.S. said. "Because the breach letters reveal the current state of hostility between defendants, the letters evince barriers to integrating these firms and are relevant to" one of the defenses raised by the companies.

At stake—in addition to the $48 billion deal itself—is the $1.85 billion breakup fee Anthem would owe Cigna if the Justice Department wins a court ruling blocking the merger on antitrust grounds. Under the terms of the merger, Anthem wouldn’t have to pay the fee if Cigna were found to have committed a "willful breach" of the agreement.

Tensions between Anthem and Cigna have been evident since before the Justice Department sued the companies in July to stop the merger, which it says would reduce competition and reduce choice for consumers. At court hearing in August, an Anthem lawyer said there is "contentiousness" with Cigna and that Cigna intends to walk away from the deal after an April 30 deadline for closing the deal rather than extend the timing.

Anthem reiterated that the company is firmly committed to defending the deal and declined to comment. Cigna also declined to comment.

The bad rapport between the insurers stems from before the deal was struck, when Cigna rejected Anthem’s initial overtures, in part over a dispute about what role Cigna CEO David Cordani would have at a combined firm. Anthem and Cigna have also held meetings with investors to discuss their prospects if a deal can’t be completed.

Anthem shares rose 2.3 percent to close at $128.59 Wednesday. Cigna rose 1 percent, to $132.56.

The government lawsuit is scheduled to go to trial on Nov. 21. As part of their case, Justice Department lawyers are seeking all documents from the companies related to alleged breaches of the merger agreement. The companies are withholding correspondence between their in-house lawyers alleging the breaches, the government said in Wednesday’s filing.

The Justice Department says the letters should be produced because they are relevant to one of the defenses raised by the companies, namely that the merger will create a more efficient company and result in billions of dollars in cost savings. That requires cooperation, the government said.

The Justice Department disputes the efficiency claim "in part because hostility between defendants could hamper integration efforts," it said.