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February 18, 2017

Cigna and Anthem trade charges of sabotage

In a vicious legal battle laid out in court papers unsealed Friday, Cigna accuses Anthem of undermining its business by stealing confidential information and soliciting its customers.

Anthem counters in a rival filing that Cigna worked to sabotage the companies’ proposed merger after its executives were not promised the positions they wanted in the merged company.

In their blistering lawsuits, the companies blame each other for the failure to obtain regulatory approval for the merger.

In its 51-page suit filed in the Delaware Court of Chancery earlier this week, Cigna charged that Anthem “put its own interests ahead of its contractual obligations” and acted “with the intent to harm Cigna’s business.”

The Cigna lawsuit asks for an immediate end to the merger agreement, a $1.85 billion reverse breakup fee and at least $13 billion in damages.

Cigna and Anthem reached a merger agreement in the summer of 2015. The Justice Department sued to block it about a year later. Last week, a federal judge agreed with the Justice Department the merger would be anti-competitive and harm consumers.

Cigna wants out – with compensation – and Anthem wants to keep the merger alive, having appealed the federal court’s decision. It says the merger agreement has an April 30 deadline. Cigna says Anthem’s actions have breached that agreement and that any further attempts to merge are futile.

The chancery court in Wilmington will now be the scene of a showdown over whether the insurers will be allowed to divorce.

In its condemnation of its merger partner, Cigna said Anthem, a Blue Cross/Blue Shield company, never intended to fulfill what it promised in its merger agreement. It said Anthem wanted to avoid fines for violating Blue Cross/Blue Shield guidelines with a “bias to Blue” strategy.

“Rather than promoting consumer choice and fostering the Cigna brand as a competitor to the Blues, Anthem would seek to herd Cigna customers under the Blue umbrella,” Cigna said. “The DOJ seized on Anthem’s bias-to-Blue strategy as powerful evidence of the anticompetitive effects of the proposed merger.”

Cigna also accused Anthem of using the legal proceedings to ferret out confidential data and information about customers.

“As Anthem failed to implement any strategy that could have obtained regulatory approval, completing the Cigna merger became secondary to Anthem’s goal of leveraging the pendency of the merger agreement to benefit itself and the other Blues while undermining Cigna as a competitor — breaches that were willful in every sense,” Cigna said.

“Among other examples of Anthem acting intentionally to harm Cigna, Anthem misappropriated Cigna’s confidential information,” Cigna said, and “touted to the market that it would copy innovative components of Cigna’s business if the deal did not close…”

Anthem fought back in a filing that was also unsealed late Friday.

“Notwithstanding the enormous benefit to its shareholders, Cigna’s board and senior management were not willing to support a merger unless they could maintain their employment positions,” Anthem’s suit said. “Rather than working to unlock shareholder value, Cigna’s Chief Executive Officer, David Cordani, and Cigna’s Board of Directors tied their support of a merger to their own entrenchment.”

Anthem said Cigna refused to negotiate unless, among other demands, Cordani was appointed CEO of the combined company and Cigna was given an equal number of seats on the board of the combined company.

Since they did not get their way, Anthem said, senior management and board members at Cigna instead “dedicated their efforts to sabotaging the merger in order to preserve their employment positions and capture the $1.85 billion reverse termination fee.”

“Remarkably, Cigna worked to create a false record that it was committed to the merger and that it was Anthem that failed to use reasonable best efforts to obtain antitrust clearance and close the Merger, but the record here is clear,” Anthem said. “Anthem initiated the Merger, defended it, and is now suing to maintain it. Cigna, on the other hand, resisted the Merger from the outset, did not defend it (indeed attacked it), and is now trying wrongfully to terminate it. “

On Wednesday, Anthem won a court ruling temporarily blocking Cigna from scuttling the $54 billion merger.

Delaware Chancery Court Judge Travis Laster ruled Wednesday Cigna executives couldn’t summarily pull out of the combination even after the federal judge’s rejection of the merger.

Laster said a temporary ban would protect the “legal status quo” of the deal until he could weigh arguments over the faltering merger at an April 10 hearing.

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