Anthem sues Cigna to block termination of merger

By Michael Erman

(Reuters) - Anthem Inc (ANTM.N) said on Wednesday it filed a lawsuit to block smaller rival Cigna Corp (CI.N) from officially terminating their proposed $54 billion merger, a transaction already rejected by U.S. antitrust regulators.

The deal would have created the largest U.S. health insurer. Rivals Aetna Inc (AET.N) and Humana Inc (HUM.N) had sought their own merger, representing an unprecedented consolidation among U.S. health insurers.

In separate rulings, federal judges struck down both deals as anticompetitive, at the request of the Justice Department. Aetna and Humana said on Tuesday they were ending their deal, but Anthem filed an appeal of its ruling.

Cigna, however, said on Tuesday it notified Anthem it had ended the deal and that Anthem was required to pay a $1.85 billion break-up fee under their agreement.

Cigna also filed a lawsuit in Delaware, seeking legal sanction for its decision to end the deal and approval for $13 billion in damages for its shareholders who did not receive the takeover premium.

Anthem's lawsuit, which was also filed in Delaware, seeks a temporary restraining order to prevent Cigna from ending the deal, arguing there is still enough time to complete the transaction first announced in July 2015.

"Cigna's lawsuit and purported termination is the next step in Cigna's campaign to sabotage the merger and to try to deflect attention from its repeated willful breaches of the Merger Agreement in support of such effort," Anthem said.

Cigna said on Wednesday that it believed Anthem's allegations were meritless.

Anthem said it was pursuing an expedited appeal of the court decision and remained committed to complete the merger either through a successful appeal or through a settlement with the new leadership at the Justice Department under the Trump administration.

Cigna maintains that Anthem had not done enough to reduce potential anticompetitive elements on its side of the transaction, and would not be able to make those changes in time to secure regulatory approval.

"Accordingly, there is no viable path to completing this transaction," Cigna said.

Cigna had increased its share repurchase program to $3.7 billion, but said on Tuesday it would limit the share repurchase amount to $250 million per quarter. Some analysts questioned whether this signalled a new intent by the insurer to seek an acquisition.

"We believe this suggests Cigna was looking to deploy the capital in another way, potentially M&A, but we are hesitant to suggest another public-public merger offer," Piper Jaffray analyst Sarah James said in a client note.

(Reporting by Michael Erman in New York, Additional reporting by Ankur Banerjee in Bengaluru; Editing by Martina D'Couto and Tom Brown)