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A Delaware Chancery Court ruling could doom Anthem Inc.'s petition to the U.S. Supreme Court to save its $48 billion merger with Cigna Inc.
There are two tracks of litigation regarding the proposed tie-up that may be on a collision course. A decision in the Delaware court allowing Cigna to terminate the deal, as the insurer requested in a May 8 hearing, would likely moot Anthem’s May 5 petition asking the U.S. Supreme Court to allow the deal to go forward.
If the high court quickly denies Anthem’s petition, that would end Anthem’s quest to overturn lower court decisions blocking the deal. In that case, the fight to keep Cigna in the merger contract in the Delaware court would almost certainly be futile.
Anthem and Cigna are locked in a dispute in the Delaware court over which party may have breached their merger contract between its signing in July 2015 and the February 2017 hold ordered by the U.S. District Court for the District of Columbia at the government’s request. At issue in that case is Cigna’s right to the $1.85 billion breakup fee.
Cigna told a Delaware judge on May 8 that the contract has expired, and it should be allowed to terminate the parties’ agreement and let the merger die. The contractual deadline to close the deal was April 30.
Anthem’s separate petition for writ of certiorari in the Supreme Court asks the justices to clarify how courts should weigh the market benefits for consumers that the parties claim their merger will bring against the competitive harm the government alleges.
If the Supreme Court were to accept Anthem’s petition, it would be the first time that it has weighed in on a merger review case since 1974. King & Spalding counsel John Carroll told Bloomberg BNA that there are a lot of opinions from lower courts on mergers and the economic “efficiencies” defense Anthem raises. But he said guidance from the Supreme Court would be helpful. Whether this is the right case for that guidance is a harder question.
On the one hand, merger cases rarely evolve into issues that the Supreme Court can review because trouble in district court often means the deal is abandoned, Elai Katz, a partner at Cahill Gordon & Reindel LLP, told Bloomberg BNA. In this case, Anthem is pursuing all options to keep the deal alive. “Perhaps this is a situation where the court might hear the case,” he said.
“On the other hand, the kinds of efficiencies we’re talking about here are not those parties typically argue in merger cases,” he added. Health care is different from other markets, and the benefits that Anthem argues customers will get might be specific to some health insurance markets. The case might be unique and therefore less likely to be heard by the Supreme Court, Katz said.
Also, the nature of the economic benefits that Anthem is pressing—the result of an improved negotiating position with suppliers—raises more questions. The courts have not yet addressed whether the lower doctor and hospital rates that a merged Anthem-Cigna could negotiate would be based on the new entity having too much concentrated market power as a buyer. The DOJ claimed that’s what would happen in its suit to block the deal.
Before 1974, appeals of government merger challenges went directly to the Supreme Court because of a district court ruling under the Expediting Act of 1903. Congress changed that procedure when it passed the Tunney Act in 1974, which sent antitrust merger challenge appeals through the circuit courts like most other cases. The change meant a sudden drop in Supreme Court review for these cases. As a result, both of the cases that Anthem cites in its petition seeking clarification on the role of efficiencies are over 40 years old.
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