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In , a federal court sided with the DOJ, saying that the merger would decrease competition. Cigna had wanted out. During court proceedings, letters and emails between the insurers showed a bitter relationship.
Anthem, in turn, successfully compelled the court to keep Cigna in the deal as the deal headed to appeal, and filed a petition with the Delaware Supreme Court requesting a review. Both companies had sought damages. The most recent ruling makes it final: Neither company will receive a dime.
In an Anthem shareholder filed a similar lawsuit against current and former Anthem leadership, alleging a breach of fiduciary duties and corporate waste linked to the merger agreement — a case that, according to Anthem's quarterly report , had been stayed while the two organizations awaited final word from the Delaware Supreme Court. Last year, Cigna investors claimed in a lawsuit that Cigna's leadership used "black-ops style" tactics in a covert campaign to sabotage the deal.
A Massachusetts-based pension fund alleged that Cigna CEO David Cordani sought to thwart the deal after failing to secure the top post in the merged company. Twitter: JELagasse Email the writer: jeff.
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Cigna breached the Reasonable Best Efforts Covenant by i implementing a covert communications plan against the Merger and ii withdrawing from the integration planning. The court found that, taken as a whole, these actions breached the Regulatory Efforts Covenant. The court stated that, to guide the analysis of the issue of causation in this context, Delaware has adopted the framework set forth in the Restatement of Contracts Second.
We note that, although Anthem and Cigna were, respectively, the second and third largest US insurance companies, it was not a foregone conclusion that the Merger was likely to be enjoined. The court also held that Anthem did not breach the Regulatory Efforts Covenant.
Cigna questioned the decisions Anthem made relating to the regulatory process and generally asserted that Anthem had chosen the wrong regulatory strategy, thereby causing failure of the No Injunction Condition. The court also held that Cigna was not entitled to the Reverse Termination Fee. Cigna claimed entitlement to the Reverse Termination Fee based on its having terminated the Agreement pursuant to the Temporal Termination Right. One lesson from Anthem-Cigna is that, when a transaction is at risk of not receiving required regulatory approvals, the parties may wish to consider providing for liquidated damages for breaches of the merger agreement in order to avoid the result in Anthem-Cigna.
However, his lingering disappointment augured the ensuing drama. MOE parties should seek not only to set forth a resolut ion of succession and other sensitive issues in the merger agreement, but to ensure that there is a meeting of the minds on these issues that will endure post-signing.
Background In July , Anthem, Inc. Regulatory Efforts Covenant. Regulatory Cooperation Covenant. The parties were obligated to cooperate when seeking regulatory approval including in various ways that were specified in detail. They agreed that Anthem would have the authority, in consultation with Cigna, to take the lead in communicating with regulators and developing a regulatory strategy, including for purposes of any litigation.
Termination Right. Reverse Termination Fee. Practice Points Special considerations in mergers of equals. The key practice point with respect to MOEs is that, to avoid post-signing issues, the parties should try to identify, and set forth in the merger agreement the resolution of or a clear and effective process for resolving , the critical issues relating to leadership, succession, regulatory strategy, integration planning, and so on.
Anthem-Cigna demonstrates, however, that the parties also must seek to ensure that the resolutions of issues set forth in the merger agreement reflect a meeting of the minds that will endure post-signing. The Anthem-Cigna merger agreement clearly laid out the succession plan and clearly delegated authority to Anthem to develop and implement the antitrust strategy.
The Cigna CEO never truly accepted that he would not have a strong leadership role going forward even though that is what the merger agreement provided and the CEOs never developed mutual trust. We note that delays in the regulatory approval process can exacerbate post-signing issues in MOEs by allowing them to fester over a long post-announcement pre-closing period.
Transaction professionals working on a proposed MOE should never underestimate the amount of time that should be spent in discussions with the principals about transition issues in order to try to discover and resolve those issues emotional, as well as business that might not be readily resolved in the general integration process.
Limited application of the decision. Clearly, a merger party should not work against consummation of the merger. Even when a party is considering termination of a merger agreement for any reason, until a termination, the party should continue to work toward closing so as not to breach its efforts obligations.
We note that the result might have been different if the antitrust issues had been less problematic on their face involving the second and third largest insurance companies in the country combining to be the largest company. To avoid the Anthem-Cigna result, consider liquidated damages for breaches. In any event, in may be difficult to prove expectation damages for breaches of a merger agreement.
Cigna breached its obligations by failing to use reasonable efforts to satisfy closing conditions in an attempt to thwart the merger because executives did not want to give up control. Rather, the executives wanted continue to run Cigna as an independent company. Anthem was not a faultless victim either.
According to Judge Laster, Cigna wanted the merger to fail so that executives could continue to run Cigna as an independent company. While it may seem counter-intuitive for entities to merge while engaging in these types of actions, control of the final entity, which would produce control over the second largest U.
Benjamin Horney, Law Corporate lawyers can think of and help address possible scenarios that may occur, such as a successful or failed merger and the possibility of a lawsuit. Cigna and Anthem both failed to address antitrust concerns. Because of this, the DOJ enjoined both entities from collecting damages. Cigna and Anthem could have tried to quell antitrust concerns in advance or structure the merger in a way that would prevent the court and DOJ from raising antitrust concerns that cause the deal to fail.
Also, it may be unconventional for executives to trade accusations of deceit when the executives would end up working together should the merger succeed. Second, this failed merger emphasizes that in order for a party to recover damages in a merger lawsuit, there must be actual, tangible damages.
Cigna proved that there were no damages and Judge Laster agreed, holding that the breached merger provisions did not result in tangible damages. Had the court found that damages were tied to the merger agreement being broken, one of the entities likely could have been awarded damages. Moreover, the DOJ enjoining both parties produced non-recoverable, non-tangible damages.
Department of Justice DOJ concluded that the merger would have anticompetitive effects and sued to block it. In February , Judge Amy Berman Jackson issued a permanent injunction preventing the merger from closing. See United States v. Anthem, Inc. In April , the U. Court of Appeals for the D. Circuit affirmed the decision to enjoin the merger. United States v. After the district court issued its opinion, Cigna filed suit in the Delaware Chancery Court to establish its right to terminate the merger.
The court issued a temporary restraining order in February enjoining Cigna from terminating the merger. This succession plan was not formally documented during the merger negotiations.
The parties became increasing adversarial, and the court found that Cigna engaged in a series of actions that did not align itself with its merger partner Anthem:.
Because the merger agreement was a contract governed by Delaware law, Vice Chancellor Laster applied the Restatement Second of Contracts to guide his analysis, emphasizing the dispositive element of causation. Upon making this showing, Cigna then had the burden to prove that, even if it fulfilled its obligations, the No Injunction Condition would have failed.
Cigna was able to prove by a preponderance of the evidence that even if it had fulfilled its obligations, 1 the DOJ still would have blocked the merger based on its anticompetitive effects on the market for national accounts and 2 the district court and D.
Circuit still would have enjoined the merger on that basis. Circuit would have reached the same outcome on the national accounts antitrust issue, regardless of whether Cigna breached its obligations under the Efforts Covenants. In order for Anthem to be subject to damages for a willful breach, the merger agreement required that Anthem have actual knowledge that its action or inaction would be a material breach of the merger agreement.
The court then addressed the issue of whether Anthem owed Cigna the reverse termination fee. Cigna attempted to terminate the merger agreement because the merger did not close prior to the outside date established in the merger agreement. The court found that Cigna failed to show that Anthem was liable for the reverse termination fee.
Conclusion—No Damages. The In re Anthem-Cigna Merger Litigation presents several key lessons for litigation and transactional parties and professionals. Specificity of Regulatory Efforts Covenants. This should include certain protocols the parties will be entitled to follow in the event of a governmental challenge, even if not directly related to the action itself or providing information to the relevant governmental authority.
This is especially important if, as was the case here, the Regulatory Efforts Covenant contains a higher standard of performance than the more broadly applicable Reasonable Best Efforts Covenant.
This would have to be balanced against the traditional structure of merger agreements, which typically provide for certain reverse termination and, in some cases, termination fees intended to largely be the sole source of damages for specific contractual termination scenarios. This case also underscores the need to exercise caution when hiring an outside adviser or communications firm.
In particular, privilege should be properly and extensively considered when hiring such firms. The case is a vivid and cautionary tale reinforcing that the mere retention of a communications firm by a law firm will not create privilege and that an aggressive assertion of privilege in such a manner can undermine credibility.
Finally, the decision also underscores the importance of maintaining a coherent and cohesive narrative across multiple litigation venues. In particular, Vice Chancellor Laster noted that the public positions taken by each party shortly after the transaction was announced were not entirely consistent with positions taken by those in the regulatory or litigation proceedings that followed later.
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WebSep 1, · The lawsuit arose in after Anthem refused to pay a breakup fee to Cigna after its aborted $48 billion merger with the nation’s second-largest health insurer, . WebOct 2, · In , Cigna, Corp. (“Cigna”) and Anthem, Inc. (“Anthem”), both major market participants in the United States (“U.S.”) healthcare industry, began what would . WebMay 3, · Anthem had proposed to buy Cigna for more than $54 billion, in a deal that would have created the largest health insurer in the U.S. But disagreements over who .