In re Anthem-Cigna Merger Litig.

• Decision Date: 31 August 2020
• Docket Number: Consolidated C.A. No. 2017-0114-JTL
• Parties: IN RE ANTHEM-CIGNA MERGER LITIGATION
• Court: Court of Chancery of Delaware

IN RE ANTHEM-CIGNA MERGER LITIGATION

Consolidated C.A. No. 2017-0114-JTL

COURT OF CHANCERY OF THE STATE OF DELAWARE

Date Submitted: March 9, 2020

August 31, 2020

MEMORANDUM OPINION

William M. Lafferty, Kevin M. Coen, D. McKinley Measley, Zi-Xiang Shen, Thomas P. Will, Daniel T. Menken, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Glenn M. Kurtz, Claudine Columbres, Andrew W. Hammond, Gregory Starner, Camille M. Shepherd, Vatsala Sahay, WHITE & CASE LLP, New York, New York; Heather M. Burke, WHITE & CASE LLP, Palo Alto, California; Dana E. Foster, WHITE & CASE LLP, Washington, D.C.; Attorneys for Anthem, Inc.

David E. Ross, Garrett B. Moritz, S. Michael Sirkin, Adam D. Gold, Benjamin Z. Grossberg, Anne M. Steadman, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Stephen R. DiPrima, William Savitt, Graham W. Meli, Adam M. Gogolak, Lauren M. Kofke, S. Christopher Szczerban, Steven P. Winter, Claire E. Addis, Bita Assad, Daniel H. Rosenblum, Jacob Miller, Jeohn Salone Favors, WACHTELL, LIPTON, ROSEN & KATZ, New York, NY; Attorneys for Cigna Corporation.

LASTER, V.C.

TABLE OF CONTENTS

I. INTRODUCTION ...................................................................................................... 1

II. FACTUAL BACKGROUND .................................................................................... 8

A. The Parties .............................................................................................................. 14

B. Merger Talks In 2012 ............................................................................................. 17

C. Merger Talks In 2014 ............................................................................................. 19

D. The Path To The Merger Agreement ..................................................................... 24

1. The Non-Public Negotiations ...................................................................... 27

2. Anthem's Bear Hug Letter .......................................................................... 30

3. The Management Meetings ......................................................................... 32

4. The Agreement In Principle ........................................................................ 36

5. The Struggle Over Cordani's Role As COO ............................................... 37

6. The Parties' Understandings Regarding The Blues Rules .......................... 40

E. The Merger Agreement .......................................................................................... 41

F. The Need For Stockholder And Regulatory Approval ........................................... 44

1. Stockholder Approval .................................................................................. 44

2. Regulatory Approval ................................................................................... 45

G. The Integration Planning Process And The L2/L3 Selection Dispute ................... 53

1. The First Months Of Integration Planning .................................................. 54

2. The L2/L3 Selection Dispute ...................................................................... 56

3. The Dispute Letters ..................................................................................... 58

4. The Meeting On January 11, 2016 .............................................................. 61

5. The Cigna ELT's Response ......................................................................... 63

6. Preparations For The February 16 Meeting ................................................ 65

7. The February 16 Meeting ............................................................................ 67

8. Cigna Escalates Further ............................................................................... 68

9. The De-Scoping Of The Integration Planning Process ............................... 74

10. The Status Of The Regulatory Approval Process ....................................... 75

H. The Impasses Of March And April ........................................................................ 77

1. Swedish Pushes Forward ............................................................................. 77

2. The Continued Impasse Over Integration Planning .................................... 78

3. The Cigna Board's March 31 Meeting ........................................................ 81

4. The Anthem Board Unsuccessfully Pursues Détente .................................. 84

5. Cigna Changes Its Disclosure ..................................................................... 87

I. The Second Stage Of DOJ Review ........................................................................ 89

1. The DOJ Update .......................................................................................... 89

2. The White Papers ........................................................................................ 90

3. Internal Integration Planning At Anthem .................................................... 94

4. Teneo Leaks The Dispute Letters To The Wall Street Journal ................ 100

5. Cigna Attempts To Re-Engage On Integration Planning .......................... 105

6. "Bias-to-Blue" As A Go-To-Market Strategy ........................................... 107

J. The DOJ Opposes The Merger ............................................................................. 110

1. The June 10 Meeting With The Staff ........................................................ 110

2. The Remediation Effort ............................................................................. 112

3. The June 21 Meeting With The Front Office ............................................ 116

4. Cigna Continues To Analyze Its Standalone Options ............................... 122

K. The Antitrust Litigation ........................................................................................ 124

1. The Parties' Initial Responses To The Antitrust Litigation ...................... 124

2. Cigna's Covert Communications Campaign ............................................. 126

3. The Initial Phase Of The Antitrust Litigation ........................................... 132

4. Discovery In The Antitrust Litigation ....................................................... 135

5. Pre-Trial Preparations ................................................................................ 138

6. Trial In The Antitrust Litigation ................................................................ 143

L. Anthem Extends The Termination Date ............................................................... 154

M. The District Court Enjoins The Merger ............................................................... 155

N. Anthem Appeals ................................................................................................... 168

O. This Litigation ...................................................................................................... 169

P. The DC Circuit Court Decision ............................................................................ 171

Q. Anthem Terminates The Merger Agreement ....................................................... 186

R. This Litigation Proceeds To Trial ........................................................................ 188

III. LEGAL ANALYSIS ............................................................................................... 189

A. The Legal Framework .......................................................................................... 189

B. The Plain Meaning Of The Efforts Covenants And The No Injunction Condition .......................................................................................................................... 193

1. The Reasonable Best Efforts Covenant ..................................................... 193

2. The Regulatory Efforts Covenant ............................................................. 196

3. The Regulatory Cooperation Covenant ..................................................... 201

4. The No Injunction Condition .................................................................... 204

C. Anthem's Claims For Breach Of The Efforts Covenants .................................... 204

1. Cigna's Covert Communications Campaign Against The Merger ........... 205

2. Cigna's Withdrawal From Integration Planning ....................................... 212

3. Anthem's Claim Against Cigna For Obstructing A Divestiture ............... 234

4. Anthem's Claim Against Cigna For Resisting Mediation ........................ 246

5. Cigna's Undermining Of Anthem's Defense In The Antitrust Litigation 251

D. Whether The No Injunction Condition Would Have Failed If Cigna Had Not Breached ............................................................................................................... 263

1. The National Accounts Issue ..................................................................... 264

2. The Local Markets Issues .......................................................................... 270

3. Other Regulatory Approvals ..................................................................... 272

4. Judgment In Favor Of Cigna ..................................................................... 273

E. Cigna's Claim Against Anthem For Breach Of The Regulatory Efforts Covenant .......................................................................................................................... 273

1. Cigna's Claim Regarding The Blues Rules ............................................... 273

2. Cigna's Claim Regarding The $704 Million In Efficiencies .................... 288

3. The Effect-Of-Termination Provision ....................................................... 289

4. Judgment In Favor Of Anthem .................................................................. 293

F. Cigna's Claim Against Anthem For Failing To Pay The Reverse Termination Fee...