By Brent Kendall and Anna Wilde Mathews
WASHINGTON -- The trial starts Monday in the Justice Department's challenge to health insurer Anthem Inc.'s $48 billion acquisition of reluctant partner Cigna Corp., a case that could produce unusual courtroom drama and be a last hurrah for President Barack Obama's antitrust enforcers.
The Justice Department has been aggressive in challenging mergers recently, but none of its efforts is bigger than its lawsuits challenging the Anthem-Cigna deal, the largest ever in the industry, and a $34 billion deal that would combine insurers Aetna Inc. and Humana Inc. A trial on the latter transaction begins Dec. 5.
The deals have been among the most prominent in a merger wave that has seen companies in a wide range of industries seek to join forces in recent years. If completed, the insurer transactions would leave the industry topped by three giant firms: the two merged companies and market leader UnitedHealth Group Inc.
The department sued to block the two deals in July, arguing they would eliminate competition that has led to lower premiums and better care. Rulings in both cases could come before President-elect Donald Trump's inauguration, in effect making them the final chapter of Mr. Obama's efforts to reinvigorate antitrust enforcement.
Anthem, Aetna and Humana are all defending their deals, saying they will produce notable consumer benefits without hurting competition. Cigna has offered little public defense of its deal lately, emphasizing only that it is fulfilling its legal obligations to its acquirer, amid signs of tensions between it and Anthem that have surfaced in pretrial proceedings.
At a fall hearing, a Cigna lawyer asked Judge Amy Berman Jackson for the opportunity during trial to object to questions that Anthem lawyers might ask of Cigna executives on the witness stand. The request was unorthodox, given that the insurers are, in theory, on the same side.
"It's completely extraordinary," Judge Jackson responded. "It's nothing I've ever seen before. I have trouble wrapping my mind around it." She suggested she would be dubious of any such request.
Anthem and Cigna have been locked in behind-the-scenes quarrels. The two companies have accused each other of breaching the terms of their 2015 merger agreement, according to court documents. Anthem said in a legal filing it expects Cigna to try to back out of the deal as soon as it is legally able -- a date that Anthem can push back to April 30, 2017, at the latest.
Cigna has said that Anthem "independently" made the call to fight the Justice Department suit. If the deal is blocked, Cigna could be in line to receive a $1.85 billion fee from Anthem.
The two insurance merger cases are proceeding in front of different judges and raise different issues. In the Anthem case, the Justice Department argues that the deal would unlawfully reduce competition in the commercial insurance market, leaving large national employers with few choices in selecting health plans for their workers.
Anthem says the deal will make it more innovative and efficient, producing cost savings that will be passed on to consumers. It also argues that big employers have the leverage and sophistication to defeat any attempted price increase by a health insurer.
The first few days of the trial could be crucial in setting the tone. The Justice Department is expected to start its case by summoning as witnesses Anthem CEO Joseph R. Swedish and Cigna CEO David Cordani.
In an earnings call Nov. 2, Mr. Swedish said the company remains committed to its deal and believes the Justice Department's case is based on a "flawed analysis."
The Aetna case, in contrast, focuses heavily on the market for private Medicare plans, Humana's main line of business. The government says the merger would eliminate aggressive competition between the companies to enroll seniors in so-called Medicare Advantage plans.
The insurers say their transaction would combine two complementary companies that would offer better, more cost-effective insurance products.
Representatives for all four insurers declined to comment for this article.
A negative decision almost surely means the end of the Anthem deal, given its tensions with Cigna. Companies rarely keep litigating merger cases if they lose at trial because it is very difficult to keepa deal together for another year or two of litigation.
Investors have largely discounted the chances of the Anthem deal closing, analysts said, though some see a potential path for Aetna's acquisition of Humana. "Almost no one thinks Anthem and Cigna is going to happen," said Chris Rigg, an analyst with Susquehanna Financial Group.
The cases come as Republicans are discussing major changes to federal health-care policy. But even a rewrite or repeal of the Affordable Care Act shouldn't have a major impact on the rationales behind the insurance mergers, analysts said.
Write to Brent Kendall at firstname.lastname@example.org and Anna Wilde Mathews at email@example.com
(END) Dow Jones Newswires
November 20, 2016 07:14 ET (12:14 GMT)
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