New details show the insurers have major disagreements over their proposed merger

By Brent Kendall and Anna Wilde Mathews

WASHINGTON -- Newly unsealed court testimony shows health insurers Anthem Inc. and Cigna Corp. have significant disagreements about their proposed merger, offering fresh details about a rift that is highly unusual for two companies seeking to press ahead with such a deal.

A trial on the planned merger began last week after the Justice Department decided to challenge it on antitrust grounds. Substantial parts of the case have been open to the public, but U.S. District Judge Amy Berman Jackson closed the courtroom for crucial portions of testimony by Anthem Chief Executive Joseph R. Swedish and Cigna CEO David Cordani, after the companies said confidential business information could be involved.

The judge ordered the transcripts of the testimony unsealed Monday, however, after seven media organizations, including The Wall Street Journal, raised objections to keeping it sealed.

Anthem and Cigna have quarreled for months behind the scenes even as their push to combine has moved forward, with each company accusing the other of violating their $48 billion agreement.

The newly unsealed testimony shows that, among other things, Cigna officials have questioned Anthem's postmerger plans for their company, while Anthem executives have tried to move forward unilaterally since Cigna ceased cooperating with them on various deal-related issues.

In testimony from last Tuesday, reviewed by The Wall StreetJournal after the unsealing, Mr. Swedish said Anthem had established a highly confidential team to work on merger integration without Cigna's knowledge.

That appeared to puzzle the judge. "How do you work on integration without talking to the person you're integrating with?" Judge Jackson asked.

Mr. Swedish responded that the team was established only after Cigna stopped participating in certain integration efforts on the advice of its lawyers.

The Justice Department, in its questioning of Mr. Swedish, cited several internal documents from the companies. In one from December 2015, Mr. Swedish sent Mr. Cordani a note saying the two companies' execution of their integration plans had been "unacceptable."

Another internal Anthem document from this year said progress on merger integration planning was "severely constrained due to Cigna's lack of engagement."

Mr. Swedish's testimony also revealed details of tensions over the responsibilities Mr. Cordani would have in a postmerger company. The testimony confirmed that Cigna's board pushed back after Mr. Swedish offered Mr. Cordani authority that fell short of overseeing all of the combined company's major business units. Mr. Swedish relented and expanded the planned oversight to include all three units.

But Mr. Swedish said he wasn't sure if Mr. Cordani would stay with the new company at all, noting the Cigna leader had "never directly said to me that he's coming to the company."

Mr. Cordani, in his own previously sealed testimony, confirmed that Cigna stopped working on merger integration in the summer. He also said that Cigna is concerned that Anthem's plans for the merger would weaken Cigna's network and value.

"It will erode it pretty rapidly," Mr. Cordani said.

Some of Mr. Cordani's testimony appeared to cut against Anthem's defense of the deal. He said the integration strategy favored by Anthem, not supported by Cigna, could hurt competition by eroding Cigna's offerings, an argument being posed by the Justice Department.

In fact, he said, Cigna disagreed with an ad run by Anthem that touted the merger's competitive benefits, because Cigna believed "choice would potentially be constricted" for insurance clients under Anthem's preferred setup.

If the merger doesn't go through, Cigna could receive a $1.85 billion breakup fee from Anthem.

The Justice Department has sought to make the companies' discord an issue in the case, saying the tension would impede any benefits from the merger. But Mr. Swedish in his testimony said the disagreements wouldn't deter Anthem from moving forward if the court approves the deal.

"I want to underscore all this stuff about conflict or whatever you want to call it; to me, it's noise that doesn't relate to the state of readiness we now have and our ability to move forward," he said.

Cigna declined to comment. An Anthem spokeswoman declined to comment beyond Mr. Swedish's remarks. The company is expected to begin presenting its defense of the merger in court Tuesday.

Anthem says the deal will make it more innovative and efficient, producing cost savings that will benefit consumers. It also argues that even after the transaction it won't have the muscle to impose price increases on customers.

Write to Brent Kendall at brent.kendall@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

November 29, 2016 02:47 ET (07:47 GMT)

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