(Bloomberg) -- Anthem Inc. failed to overturn a court ruling that blocked its planned takeover of rival Cigna Corp., capping a nearly two-year battle to complete a combination of two of the biggest health insurers in the U.S.
The federal appeals panel in Washington upheld a lower court ruling by a 2-1 vote on Friday. The court rejected Anthem’s key argument, that the medical savings resulting from a combination of the two companies were enough to offset any anticompetitive effects.
Cigna shares have been trading well below the value of the deal as investors have been skeptical of a reversal by the courts. They rose less than 1 percent to $156.37 after dropping as much as 2 percent following the appeals court decision. Anthem declined less than 1 percent to $177.89.
Anthem, based in Indianapolis, said it was disappointed by the decision. “We are committed to completing the transaction and are currently reviewing the opinion and will carefully evaluate our options,” the insurer said in a written statement. Cigna didn’t respond to requests for comment.
The decision is a likely final blow to Anthem’s bid to complete the $48 billion merger, which a lower-court judge had said should be stopped because it risked undermining competition in health-insurance markets. The two companies have since sued one another, with Cigna seeking a $1.85 billion breakup fee and Anthem blaming its rival for undermining its legal defense of the deal.
Cigna can’t start pursuing other deals just yet, though. A Delaware judge has barred the company from walking away from the merger pending the results of a May 8 hearing. Rejection of that request would effectively set Cigna free.
Michael Newshel, an analyst with Evercore ISI, called the possibility of reviving the deal slim. “With the April 30 merger agreement expiration fast approaching, Anthem’s only inkling of hope now, if it isn’t prepared to definitely end things yet, is for a last-minute deal with DoJ under the new administration -- but we think settlement is unlikely,” he said in a note to clients after the ruling. “Besides time, further barriers to a settlement include a lack of obvious remedy to anti-competitive concerns.”
Anthem told the Delaware court in an April 26 filing that there were “meaningful opportunities” to complete deal, saying it was seeking a settlement with the Justice Department under the new Trump administration.
The Cigna takeover was one of two insurer deals that the Justice Department’s antitrust division stopped earlier this year to prevent the industry’s biggest players from consolidating. The other was Aetna Inc.’s planned acquisition of Humana Inc. While Aetna and Humana terminated their deal after losing at trial, Anthem appealed.
Last month, Anthem told the appeals court that the February decision blocking the deal was wrong because it rejected the lower medical costs the merger would provide to companies. Anthem says that by combining with Cigna it can produce $2.4 billion in savings by lowering reimbursements paid to doctors and hospitals.
But U.S. Circuit Judge Judith Wilson Rogers, in her majority opinion on Friday, agreed with the trial court’s rationale for rejecting Anthem’s claim that the merger would produce Cigna’s superior product at Anthem’s lower rates.
“One way Anthem maintains the merger will result in this new product is through rebranding,” Rogers wrote. “The record, however, refutes rather than substantiates Anthem’s proposed rebranding approach.”
The majority also questioned Anthem’s cost-savings assertion, stating it hadn’t explained why such savings would occur. “The record is clear that Anthem, unlike Cigna, has already achieved whatever economies of scale are available,” Rogers wrote.
Dissenting, U.S. Circuit Judge Brett Kavanaugh said he’d have sent the case back to the lower court to re-examine whether those lower Anthem-Cigna rates would have been derived from unlawful market power over hospitals and doctors. If not, Kavanaugh said, he’d have allowed the combination.
Concurring with Rogers was U.S. Circuit Judge Patricia Millett, a 2013 selection by President Barack Obama. Rogers was nominated by another Democrat, President Bill Clinton, in 1993. Kavanaugh was a 2006 appointee of President George W. Bush, a Republican
In February, Cigna and Anthem sued one another in Wilmington, trading accusations of harassment and sabotage, leaving in question whether either could be faulted for the failure of the transaction to withstand federal scrutiny and whether the Bloomfield, Connecticut-based Cigna can collect its fee from Anthem.
“The appellate court sent a clear message to the health insurance industry: A merger that smothers competition and choice, raises premiums and reduces quality and innovation is inherently harmful to patients and physicians,” Andrew W. Gurman, president of the American Medical Association, said.
The case is U.S. v. Anthem Inc., 17-5024, U.S. Court of Appeals for the District of Columbia.