Aetna (AET) will be writing checks to rival insurers Humana (HUM) - Get Humana Inc. (HUM) Report and Molina (MOH) - Get Molina Healthcare, Inc. Report after terminating merger agreements with both in the wake of a federal judge's ruling last month blocking Aetna's $37 billion bid for Humana.
Aetna said Tuesday it will pay Humana a $1 billion reverse breakup fee as required by the companies' July 2015 merger agreement. Molina, which had agreed to buy 290,000 Aetna and Humana Medicare Advantage members in the 21 states for $117 million, will be paid a $75 million breakup fee by Aetna. The sale to Molina was intended to address antitrust concerns the Department of Justice had raised about the merger, but the DOJ found the spinoff to be inadequate and sued to block the merger in July.
After taxes Humana will get to keep $630 million.
Aetna had indicated it might appeal the ruling by U.S. District Judge John Bates. But on Tuesday Aetna Chairman and CEO Mark Bertolini said, "Both companies need to move forward with their respective strategies in order to continue to meet member expectations. "
Tuesday's developments would give Cigna (CI) - Get Cigna Corporation Report leverage if it tries to escape from its $54 billion agreement to merge with Anthem (ANTM) - Get Anthem, Inc. Report , the second health insurance mega-merger to be blocked a federal judge. That merger was blocked in federal court last week.
Anthem has said it plans to appeal the ruling and a move by Cigna to terminate the merger would likely spark a legal battle with Anthem over Cigna's right to a $1.85 billion breakup fee from Aetna. The companies' June 2015 merger agreement specifies that the reverse termination fee for failure to gain antitrust approval is not payable if the failure is due to Cigna's breach of its obligations to complete the merger.
Anthem and Cigna executives have been at odds for months over plans to integrate the merger, and an attempt by Cigna to cancel the deal has been considered a possibility regardless of how U.S. District Judge Amy Berman Jackson ultimately ruled on a Department of Justice lawsuit challenging the merger.
Cigna is now in a better position to collect its own reverse break-up fee if it decides not to join Anthem's appeal, because the end of the Aetna/Humana merger would strengthen Cigna's argument that it wouldn't be acting in bad faith by not doing so.
Cigna issued a statement Feb. 9 stating that it "intends to carefully review the opinion and evaluate its options in accordance with the merger agreement." In a Jan. 31 statement Cigna said "it is reserving all of its rights" in regards to terminating the merger agreement and had "made no determination" with respect to an Anthem announcement that it had extended the termination date of the merger from Jan. 31 to April 30.