Business relationships, not unlike human ones, are complex and messy affairs that are not always easy to analyze.
But that doesn’t stop our natural inclination to try to dissect them after they fail, hoping to figure out how not to make the same mistakes.
Sometimes, two sides continue to push for a relationship even when it becomes obvious it isn’t going to work. For exhibit A, we have insurance companies Anthem and Cigna, which are both dutifully defending their merger against a Justice Department lawsuit even though it’s increasingly clear both see the writing on the wall.
It’s been a troubled tie-up from the beginning; Cigna initially rebuffed Anthem’s advances, and when Anthem played hardball by taking the takeover bid public, Cigna’s board shot back with a statement that called the insurer’s action’s “deeply disappointing.”
You would think they would have put their differences aside once the two companies finally agreed to a deal, but as in a doomed marriage, the fundamental discord between Anthem and Cigna soon began to re-emerge.
First, Cigna raised eyebrows when it diverged from Anthem’s stance on when the deal was expected to close. Then a report detailed conflict between the companies’ leaders--about everything from Anthem’s legal squabble with Express Scripts to the finer points of the regulatory process.
Once the DOJ filed its suit, Cigna had even more reason to be reticent, and in subtle ways began to distance itself from the deal.
Speaking to investors in early August, CEO David Cordani emphasized that “Anthem independently decided to pursue the lawsuit with the DOJ.” Cigna will fulfill its contractual obligations to fight for the merger, he said, but will continue to evaluate its options “as they unfold.”
Not exactly words that scream “we’re in this together.”
All of those developments--coupled with the DOJ’s recent tough-on-mergers stance--deepened doubts that Anthem and Cigna would ever complete their combination. But then, the feds had another trick up their sleeve.
In a recent court filing, the DOJ argues for access to evidence that both companies have accused one another of breaching their merger contract, saying the discord proves its point that Anthem has overestimated the deal’s potential efficiencies.
Put simply, the news is “another data point indicating that the legal defense mounted by the companies against the DOJ lawsuit blocking their merger is unlikely to be successful,“ Leerink Partners analyst Ana Gupte said in a research note.
Certainly, both Anthem and Cigna are well aware of the long odds now facing their deal, and have contingency plans in place should it fall apart. Anthem will absorb the cost of the break-up fee, but it’s more important that other insurers eyeing consolidation absorb the lesson in this ill-fated union.
Most vividly, it’s clear from watching both the Anthem-Cigna and Aetna-Humana mergers play out that all the lawyers and lobbying muscle that money can buy won’t replace the power of cultural alignment.
Aetna and Humana may not be able to win over the DOJ--which is understandably concerned about the anticompetitive ramifications of the deal--but their pact has largely been free of the drama seen in Anthem-Cigna,
How did they do it? Aetna CEO Mark Bertolini credits starting early, and hiring an integration specialist formerly of OptumHealth, to make sure both companies were on the same page. Humana, knowing it was a hot target for acquisition, weighed its options and agreed to the deal in part because it felt Aetna’s culture most closely matched its own, Bertolini has said.
Should both mergers fall through, the country’s largest health insurers won’t likely lose their will to merge, as forces like hospital consolidation and the lure of scaling up to please shareholders aren’t going away anytime soon.
So it’s all the more important that potential acquirers take heed of what Anthem and Cigna learned the hard way--that cultural alignment is not just a helpful when integrating merged companies, it's also critical to surviving the merger review process itself.
Otherwise, history is doomed to repeat itself. -- Leslie @HealthPayer