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Anthem Defeats Cigna’s Appeal Over $1.85 Billion Breakup Fee (1)

May 3, 2021, 3:32 PM; Updated: May 3, 2021, 5:13 PM

Anthem Inc. secured its win Monday against Cigna Corp.'s quest for a $1.85 billion breakup fee over the collapse of their planned $54 billion merger, which would have created the world’s largest health insurer, when Delaware’s top court upheld a decision rejecting the fee bid.

The state’s justices affirmed a Delaware Chancery Court decision “on the basis of and for the reasons” given by Vice Chancellor J. Travis Laster in his 311-page decision last year, which ruled against each company’s attempts to recoup billions from the other.

Anthem had requested $21 billion from Cigna, which sought $16 billion in turn, over the deal’s failure in 2017 after the Justice Department successfully challenged it on antitrust grounds.

Although the judge held that neither side was entitled to damages, he largely adopted Anthem’s view of the case, saying Cigna sought to sink the deal because Anthem would have controlled the combined company, which Cigna had viewed as a merger of equals.

He rejected Cigna’s bid for a $1.85 billion breakup fee on that basis.

The Delaware Supreme Court ruling Monday clears the way for separate shareholder litigation to resume against Cigna’s leaders blaming them for the merger’s breakdown.

That suit—filed by a pension fund claiming Cigna’s board and CEO used “black ops style” tactics to “blow up” the deal—had been paused pending the outcome of Cigna’s appeal.

The merger agreement called for Anthem, which runs Blue Cross and Blue Shield insurance plans, to acquire Cigna. Anthem’s breach-of-contract suit accused Cigna of undermining the transaction by working to help the government’s antitrust case.

Cigna brought breach-of-contract claims, too, saying the merger fell apart because of flaws in Anthem’s strategy for getting antitrust clearance, which was its responsibility. Cigna also argued it was entitled to a $1.85 billion “reverse termination” fee after calling off the deal over those regulatory failures.

Laster, who presided over a trial in early 2019, mostly accepted Anthem’s narrative in his Aug. 31 ruling.

But because the merger likely would have been blocked anyway, neither side was entitled to damages, the judge found, saying the companies “must deal independently with the consequences of their costly and ill-fated attempt to merge.”

He also rejected Cigna’s termination fee claim. Anthem had the right to exit the deal before Cigna did, which doomed the fee request under the merger agreement, even though it was “so committed to completing the merger” that it never pulled the trigger, Laster said.

Anthem was represented by Morris, Nichols, Arsht & Tunnell LLP and White & Case LLP. Cigna was represented by Ross Aronstam & Moritz LLP and Wachtell, Lipton, Rosen & Katz.

The case is Cigna Corp. v. Anthem Inc., Del., No. 364, 2020, 5/3/21.

(Updated with additional background and reporting throughout.)

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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