Aetna, Humana drop merger; Cigna wants to end Anthem deal

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By Caroline Humer and Diane Bartz | NEW YORK/WASHINGTON

NEW YORK/WASHINGTON Health insurers Aetna Inc and Humana Inc walked away from their $34
billion merger on Tuesday and Cigna Corp sought to end
its deal with Anthem, shelving the industry
consolidation they charted to address former President Barack
Obama’s Affordable Care Act.

Humana also said it would exit the Obamacare individual
insurance market after this year, saying that early medical
costs were running a bit high. Humana was one of several
insurers that lost money in 2016 and then cut back offerings for
this year, saying the program needs to be changed.

President Donald Trump and Republicans have vowed to repeal
and replace Obamacare, the national healthcare reform law that
created new individual insurance and expanded Medicaid, adding
20 million people to the ranks of the insured.

Trump on Tuesday tweeted about Humana’s decision to exit the
market, promising he “Will repeal, replace & save healthcare for
ALL Americans.”

The insurers, in seeking their mergers, had said the
combinations would help them grow after the law changed
everything from how doctors and hospitals are paid to the
benefits insurers must provide.

The Aetna-Humana and Cigna-Anthem deals were announced in
July 2015 and the Justice Department filed antitrust lawsuits a
year later seeking to block the deals. Two federal judges
separately ruled against the deals in recent weeks.

Government antitrust officials argued that both mergers
would lead to less competition and higher prices for Americans,
which Aetna and Anthem tried to disprove. The acquisitions would
have reduced the number of national U.S. insurers from five to

After the defeat in court on Jan. 23, Aetna and Humana said
they were weighing an appeal. But they opted on Tuesday to scrap
the merger. Aetna shares rose 3 percent to $125.81, while Humana
fell 0.4 percent to $205.97.

Aetna will pay Humana a $1 billion breakup fee, or $630
million after taxes, and terminated its plan to sell some
Medicare Advantage assets to Molina Healthcare Inc, the
companies said. Molina will receive a $75 million breakup fee.

Humana said it will buy back at least $2 billion worth of
shares in 2017 and earn a net profit of $16.65 to $16.85 per
share, helped by the payment from Aetna, and raise its dividend.

Humana is the first insurer to withdraw from the Obamacare
exchanges for 2017, but Aetna and Anthem have both said they are
considering doing so if changes are not made to the plan.

Wall Street analysts and investors suggested that the Trump
administration might be friendlier to deals, and that Humana
could again be a target for Anthem or Cigna.

Humana CEO Bruce Broussard said on a conference call that
the company would consider any takeover offer, balancing “the
probability and timing of completing a transaction,” the current
environment and the process it has just gone through.


Cigna said on Tuesday that it had notified Anthem that it
had terminated its merger and that Anthem was required to pay a
$1.85 billion breakup fee.

It also filed a lawsuit in Delaware, asking a judge to
declare legal its decision to terminate the deal and to approve
$13 billion in damages for shareholders who did not receive the
takeover premium.

Anthem responded that the merger agreement was in place
until April 30, 2017, and that Cigna could not back out.
Anthem’s shares closed down less than 1 percent at $163.32 while
Cigna rose less than 1 percent to $146.68.

Several antitrust lawyers said the two companies – which
have been at odds for the past year – likely will settle the

“We knew for weeks that all they were doing was positioning
themselves for this fight,” said Matthew Cantor, an antitrust
litigator with the law firm Constantine Cannon. “Over 90 percent
of these high stakes commercial litigation settle.”

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