NEW YORK (Reuters Breakingviews) - Anthem and Cigna may have one fight left. Their $54 billion deal was nixed on Wednesday by a federal judge, who agreed with the U.S. Justice Department's competition concerns. In addition to fighting the government, the two health insurers had been squabbling with each other over the merger. That suggests the break fee could be contentious, too.
The large overlapping operations meant combining Anthem and Cigna would shrink the number of choices for big employers across the country. A separate ruling last month also torpedoed the planned $33 billion union of rivals Aetna and Humana, signaling that the courts were unlikely to accept further consolidation. Instead of reshaping the industry into one with three dominant national providers, it will remain with five.
Anthem had argued that the enlarged enterprise would be in position to negotiate better deals with hospitals and drugmakers. These savings, along with other cost cutting enabled by the merger, would be passed on to consumers. The judge didn't buy it, not least because of what she described as "the elephant in the courtroom:" the companies being at odds with each other. Cigna officials, for example, argued in court against some of Anthem's projections.
The bad blood probably will persist. Under the terms of the transaction, Anthem is on the hook for $1.85 billion because of the failure. It could, however, argue that Cigna is not entitled to the sum because it did not work its hardest to close the deal. The judge's statement that Cigna was "actively warning against" Anthem's characterization of the outcome provides ammunition.
A swift agreement would be best. Since the summer of 2015 when the deal was announced, the shares of both companies have been flat. Rival UnitedHealth Group, the one insurer not involved in the consolidation efforts, has seen its market value rise by about a third over the same span.
In the meantime, the healthcare plan implemented by President Barack Obama is in the process of being shredded by Congress and the new administration, further roiling the industry. This doomed merger has been a distraction for Anthem and Cigna for long enough.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.