Mergers stymied, health insurers must regroup

After 18 months of courtship and court cases, two massive deals that would have reshaped the U.S. health insurance industry have both been declared dead, blocked by judges who said they would do unacceptable harm to competition in the industry.

Now, the companies are right back where they started. Anthem Inc.'s $48 billion deal to buy Cigna Corp. was blocked by a federal judge late Wednesday, weeks after another judge halted Aetna Inc.'s bid for Humana Inc. Anthem said it will appeal, and Aetna and Humana have said they are still deciding where to appeal.

The question now becomes what the companies will do with the large piles of cash they allocated for the acquisitions, and whether they'll try anew at fresh takeovers under a Trump administration, whose antitrust officials could be more amenable to large consolidations. They could also opt for something more conservative in the face of widespread uncertainty about the future of the U.S. health system. But first, they may be back in court.

"Anthem is significantly disappointed by the decision," chief executive officer Joseph Swedish said in a statement. "If not overturned, the consequences of the decision are far-reaching and will hurt American consumers."

Cigna, for its part, said it "intends to carefully review the opinion and evaluate its options in accordance with the merger agreement." CEO David Cordani has estimated that his company will have $7 billion to $14 billion of deployable capital, with the high end including extra debt the company could take on if it decided to make acquisitions.

"We have a track record of being very disciplined relative to our capital priorities and not allowing surplus capital to sit around," Cordani said Jan. 11.

Humana may be a target, once again. Cigna or Anthem may make a bid for the Louisville, Ky.-based company, which specializes in the fast-growing business of selling private health plans for the elderly, said Ana Gupte, an analyst at Leerink Partners. Cigna could also bid for WellCare Health Plans Inc., she said.

Also likely are more conservative moves by the companies, such as buying back shares or investing in their own businesses, said Sarah James of Piper Jaffray.

"The four deal stocks have been hoarding cash for 18 months, and now that the rulings have been announced, we believe the companies will look to deploy the capital," she said in a note to clients. "The companies will most likely favor share repurchases."

The ruling was largely expected, and moves in the companies' shares were muted.

The Justice Department, along with the antitrust division that sued to block the deals, could be remade under new Attorney General Jeff Sessions, who was confirmed Wednesday. While antitrust officials under the Obama administration aggressively blocked a number of mega-deals, over time the antitrust laws have ensured some consistency in enforcement between Republican and Democratic administrations.

Anthem has also said it would pursue deals and buybacks as its "Plan B" if the Cigna transaction didn't go through. CEO Joseph Swedish has said he might attempt to expand in the Medicare Advantage market through acquisitions, for example.

The 18-month effort to get the transaction done was marked by discord between Anthem and Cigna. Last year, the companies accused each other of violating the merger agreement, and the government said in court that disputes among executives had undercut the rationale for the deal.