NEW YORK, Feb 17 (IFR) - Banks advising healthcare insurance companies Anthem and Cigna on their mega-merger could be in for a longer than expected assignment as the two health insurance companies square off in court, suing and counter-suing each other over the proposed combination.
After a US federal court blocked the US$54bn tie-up on antitrust grounds, Cigna quickly attempted to pull the plug on the merger and demand its US$1.85bn in break-up fees and US$13bn in damages to cover "the amount of premium that Cigna shareholders did not realise as a result of the failed merger process."
One adverse ruling, however, is not sufficient to call off a multi-billion merger months in the making. At least that is Anthem's view.
Anthem blocked Cigna from cancelling the deal, winning a decision in a Delaware Chancery court that forced Cigna to stay engaged until April 30, the end of the latest deal extension to which the company agreed.
That could conceivably give Anthem some time to pursue an expedited appeal. Anthem said it believes that there is still sufficient time and a viable path forward potentially to complete the transaction.
At the same time the company argued that Cigna, which attempted to sabotage the merger and the appeal, is not entitled to break-up fees or damages.
Markets were surprisingly upbeat about the latest upheaval in the sector.
Bankers and lawyers away from the transaction say the appeal is now just an element in the brawl between the two companies, but the deal itself is dead.
"There is so much bad blood between these two companies now that any deal is unlikely even if Anthem wins on appeal," said one M&A attorney. "Once companies start suing each other for billions, there's never going to be a consensual merger agreement."
And that puts the banks advising them in the middle.
UBS and Credit Suisse are advising Anthem. UBS is expected to receive fees of US$30m, of which US$24m is contingent on the deal closing. Credit Suisse is set to receive US$15m, with US$9m of that contingent on closing.
Morgan Stanley, which is advising Cigna, is expecting US$81m in fees, US$60m of which vanishes if the deal falls apart. Banks advising selling companies (in this case Cigna) frequently take a percentage of the breakup fee, however.
At the end of the day the banks are trying to stay out of the fray to ensure that if another deal is in the pipeline they still have a client, said an M&A banker.
It's possible, though, that bankers from either side could be called on to testify during ongoing litigation.
As the two insurers square off, attorneys say the banks are relatively safe. The engagement letters for most transactions typically indemnify financial advisers for basically everything except gross negligence or their own wilful misconduct.
If the financial advisers do get sucked into lawsuits – and it remains possible that one or both companies will seek to blame their bankers for the debacle – it will probably mean a longer involvement than they were expecting, but no real danger.
Unless there were some egregious facts showing that the advisers did something wrong, they are likely to be fully indemnified, said another attorney.
As the healthcare industry moves to consolidate, it may be hard to argue that the banks, not the companies, drove the merger despite antitrust concerns.
Banks can also take comfort from the fact that the deal fell apart on antitrust grounds. There is typically a distinct line separating bankers and lawyers in M&A deals, and antitrust vetting falls on the lawyer's side of the line.
The banks were probably not deeply involved with the antitrust work and subsequently may not be very involved in the litigation. (Reporting by Philip Scipio; editing by Matthew Davies)