Anthem, Cigna deal at risk after letters reveal bickering among executives

Problems have surfaced in the Anthem Inc's $48 billion proposed acquirement of Cigna Corp, as the health insurers seek regulatory approval for their landmark deal, according to the Wall Street Journal.

In a series of letters between top officials from both companies, each has accused the other of violating the July merger agreement and mishandling submissions to regulators, the Journal wrote. These disagreements could delay the merger, which does not appear to be at risk. The deal, if completed, would create the largest U.S. health insurer with more than 54 million members and $117 billion in annual revenue.

One of the major points of contention is Anthem’s lawsuit against Express Scripts Holding Co., a major middleman for prescription drugs, where Anthem accuses Express of overcharging for drugs and seeks $15 billion in damages.

Cigna Chairman Isaiah Harris Jr. said the suit could lower the combined company's value and hurt the prospects for regulatory approval while Anthem stated it had alerted Cigna to the possibility of a lawsuit early in their merger talks, and that demanding better prices from Express Scripts can only be beneficial.

Anthem General Counsel Tom Zielinski wrote that he did “not intend to correspond further” about the lawsuit, about his Cigna counterpart, Nicole Jones.

Ms. Jones responded with: “Suffice it to say that we disagree with just about every characterization and assertion that you make with respect to the matters raised in your letters—other than your suggestion not to continue a correspondence.”

That’s not the last of the problems either, tensions have been rising about the future position of Cigna Chief Executive David Cordani. Anthem had offered Mr. Cordani oversight over some of the combined company’s three business segments but he pushed for control of all three and was granted oversight.  

Cigna has also become anxious as some senior-level departures at Anthem, including the resignation of CFO Wayne DeVeydt, helped send Cigna’s shares down 2 percent on top of the 25 percent its shares are being sold below the offer price.

Information about Cigna’s cost-of-care and salary expenses used to calculate savings is key in convincing regulators that the deal is pro-competition but have not been received by Anthem.

“Cigna’s tardiness, data formatting issues and midcourse changes…[have] been highly disruptive and demotivating,” Zielinski wrote to Jones.

The relationship between these companies have been rocky since the first meetings last summer. They have disputed over the price, the mix of cash and stock to be paid to Cigna shareholders, and who would run the combined company. After weeks of negotiations they reached an uneasy agreement where Swedish would be CEO and step aside in two years, but no commitment that the job would go to Cordani, who would be president and chief operating officer.

Cigna told investors that the deal might be delayed until next year, rather than in late 2016. Although the deal is not at risk for falling apart Cigna could collect a $1.85 billion breakup fee from Anthem if that does transpire. Goldman Sachs Group analysts estimated that with that fee in hand, an independent Cigna could deploy $9.2 billion for acquisitions, share buybacks or dividends.