Shareholder suit claims Anthem executives ignored risks of Cigna merger

anthem
Anthem's board and former CEO are facing new claims that they were "willfully blind" to the risks of the $54 billion Cigna merger. (Matthew Hurst / CC BY-SA 2.0)

The legal fallout from Anthem’s breakup with Cigna in 2017 continues, and the latest lawsuit is laying blame at the feet of the company's top brass.

A shareholder lawsuit filed this week against Anthem’s board of directors, including former CEO Joseph Swedish, alleges the board violated its fiduciary duties by willfully ignoring signs that the $54 billion merger would gain antitrust approval and could not overcome what one executive described as “insurmountable barriers."

Filed by shareholder Henry Bittmann in Marion Superior Court in Indiana, the derivative lawsuit brought on behalf of the company names 11 of Anthem’s current and former board members, including Swedish, former chief financial officer Wayne DeVeydt and Elizabeth Tallet, who was named board chair in February.

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Cigna is currently entangled in a cutthroat legal battle with Anthem to recoup $13 billion in estimated damages from the fallout of the deal, including a $1.85 billion breakup fee. Anthem disclosed the newest shareholder lawsuit in a financial filing this week, adding that the company "intends to vigorously defend this lawsuit."

Based on events disclosed in the financial filings and subsequent litigation, the 86-page complaint (PDF) alleges that Anthem’s top executives either knew the merger with Cigna would “stifle competition” or were “willfully blind" to the intended purpose of eliminating Cigna as a competitor. Bittman claims the board "did not conduct even a minimal investigation as to the risk that the merger would fail regulatory scrutiny for violating the antitrust laws.”

“Either way, the Board engaged in willful misconduct,” the suit lawsuit states.

RELATED: Cigna ends merger with Anthem, sues for more than $14B

Citing comments made during earnings calls and emails unearthed after the merger fell through, Bittman describes how Anthem executives wanted to eliminate Cigna as a competitor and take out current CEO David Cordani.

But the biggest barrier, according to the complaint, was Blue Cross Blue Shield Association rules that curbed the amount of revenue Anthem could generate from non-Blues plans. Violating those rules could lead BCBSA to revoke Anthem’s membership and the company's right to use Blue trademarks and products, along with a $3 billion fee.

Anthem’s executives realized early on in the merger talks that Cigna’s plans would put them well above that threshold in what general counsel Thomas Zielinski called an “insurmountable barrier,” according to the complaint.

But months after giving up on the deal, Anthem executives and the board restarted negotiations in light of the rumored Aetna-Humana merger. Executives reassured Cigna that the company had “many levers” to get around the restrictions. Rather than check “what was clearly an attempt to steamroll through the merger in violation of the antitrust laws,” the board either "winked-and-nodded" or willfully ignored the risks, according to the suit.

“The directors’ discussions of the merger negotiations, as revealed in public filings, covered almost every issue except the BCBSA issues that mere months earlier were a show-stopper to the negotiations,” the complaint states, adding that the BCBSA issues were not raised again in public filings to shareholders.

In a statement to FierceHealthcare, an Anthem spokesperson defended the company's proposed merger.

"Anthem remains committed to making health care more accessible and more affordable for all Americans and maintains that the complementary nature of the proposed acquisition of Cigna would have increased consumer access to high quality, affordable healthcare," the statement read. "Anthem’s directors and management unequivocally assert that this complaint is baseless and completely without merit."

Bittmann is asking the court to award restitution from the board members by returning “all profits, benefits and other compensation,” including incentive compensation and common stock sale proceeds. The suit also asks the court to force Anthem to “reform and improve its corporate governance and internal procedures” and establish more robust procedures to vet mergers.

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