The End or Beginning? Anthem ends Cigna merger, won’t pay breakup fee, seeks damages (updated)

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2017/05/The-End-Pic-typewriter.jpg” thumb_width=”175″ /]Updated. Anthem on Friday 12 May beat Delaware Chancery Court’s Judge Travis Laster’s ticking clock [TTA 11 May], and finally, formally called off its merger with Cigna. Instead of sighs of relief and seeking oblivion in a few bottles of adult beverages, Anthem still won’t stop and let Cigna go. Anthem now refuses to pay the breakup fee per their agreement, claiming once again that Cigna sabotaged the merger, and wants blood from that rock. From the Anthem announcement:

In light of yesterday’s decision and Cigna’s refusal to support the merger, however, Anthem has delivered to Cigna a notice terminating the Merger Agreement. Cigna has failed to perform and comply in all material respects with its contractual obligations. As a result, Cigna is not entitled to a termination fee. On the contrary, Cigna’s repeated willful breaches of the Merger Agreement and its successful sabotage of the transaction has caused Anthem to suffer massive damages, claims which Anthem intends to vigorously pursue against Cigna. (Editor’s highlight)

Now we have Anthem seeking damages from Cigna, which is a matched set with Cigna’s Funny Valentine of 14 February adding over $13 bn in damages to recoup the unrealized premium that shareholders did not earn as a result of the merger failure. Anticipating Anthem’s position even at that time, they flipped a wicked backhand in their statement:

Anthem contracted for and assumed full responsibility to lead the federal and state regulatory approval process, as well as the litigation strategy, under the merger agreement. Cigna fulfilled all of its contractual obligations and fully cooperated with Anthem throughout the approval process.

Our Readers will also recall that in March, Cigna joined with Anthem in supporting Anthem’s appeal to the DC Court of Appeals, an unusual move in this light, but one that further reinforced their non-saboteur ‘we’re just innocent victims here’ position. Cigna has not yet publicly responded. The AMA cheered its apparent complete victory in the name of doctors and patients.

They hate each other and have from the start. The real victims here are the policyholders–patients–of both companies, with both companies distracted by a legal battle. How different they are from both Aetna and Humana, which (at least publicly) politely ended all efforts after the merger denial, paid out their breakup, and went back to business, which right now presents challenges with ACA hitting the long-predicted Actuarial Brick Wall. (Aetna exiting ACA individual exchange plans in 2018)

Judge Laster’s plans for a restful summer on Delaware’s beautiful beaches and bays are likely to have gone the way of the mouse in Robert Burns’ poem ‘To A Mouse’ (stanza 7). He is not alone in Indianapolis or Bloomfield, Connecticut:

But Mousie, thou art no thy-lane,
In proving foresight may be vain:
The best laid schemes o’ Mice an’ Men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!

See you in court! Fortune, Modern Healthcare, Healthcare DiveInterested in the previous details? See our coverage here, including our take on ‘whither the policyholders (patients) and corporate buyers’.

Anthem-Cigna breaking: lawyers may talk, but Cigna gets to walk–and it continues in court

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2017/05/The-End-Pic-typewriter.jpg” thumb_width=”175″ /]Breaking, with a whimper. This evening (11 May), the Delaware Court of Chancery released its ruling denying a 60-day injunction requested by Anthem to prevent Cigna from ending their merger. The original merger agreement had an end date of April 30. Judge Travis Laster stayed the implementation of his ruling until Monday noon to give Anthem a chance to appeal to the Delaware Supreme Court. Reuters

Is this The End? In this Editor’s opinion, yes, the petition to the US Supreme Court for a writ of certiorari notwithstanding. I stand by my Monday observation that “the Chancery Court decision to extend for 60 days–into July– is critical to any SCOTUS hearing, as it is unlikely there would be any merit in a review of a dead deal even if there is a potentially novel issue. 

So Cigna can walk, pass ‘go’ and collect…? The open issue is now Cigna’s. There is a contractually mandated breakup fee of $1.85 bn. In February, their Funny Valentine also claimed over $13 bn in damages, on the grounds that Anthem had intent to harm Cigna’s business. Not so fast though–there will certainly be a fight over the damages. According to Bloomberg, “the judge said there was significant evidence Cigna may have violated the merger agreement by dragging its feet on antitrust concerns, which could entitle Anthem to “potentially massive damages.” The next phase of court actions will be around damages awarded to Cigna, if any; if so how much; and what is the final settlement. Dirty laundry and ‘Who Shot John?’ will fly in this same court, unless the settlement is quick and quiet, highly unlikely with these two noisy protagonists. If it remains substantial, Cigna could be shopping for acquisitions–or be a cash-rich acquisition target itself. More distractions for management.

Other mergers may be more palatable in a changing healthcare landscape…just not this one. Also Fortune. Interested in the previous details? See our coverage here, including our take on ‘whither the policyholders (patients) and corporate buyers’.

Better than ‘Dallas’? Anthem and Cigna in Delaware court (updated); Anthem’s SCOTUS appeal

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2017/05/sj8qohs2yc6xbxpx1bmm.jpg” thumb_width=”150″ /]The War of the Payers grinds on. It’s altogether appropriate that this is the 100th anniversary of the US entry into the Great War. It was marked by a costly strategy that stalemated in the trenches and fatally ground into dust over four years men, machines, national treasuries, and ultimately a world order. In this Editor’s view, we are witnessing it writ large in Anthem’s, and to a lesser extent Cigna’s, actions after their merger was put paid to, first by a DC Federal District, then a District Appeals court, in a suit brought by the Department of Justice (DOJ) and 11 states.

Update: In Delaware Chancery Court May 8, Anthem requested a 60-day preliminary injunction to prevent Cigna from ending their merger. This was in a hearing on the February restraining order that Anthem received to block Cigna’s exit, filed in that court, from the merger after the District Court decision. Vice Chancellor Travis Laster said (after five hours of argument) that he would rule as soon as possible. Reuters  New: Even Judge Laster admits it’s a ‘long shot’ that Aetna could find a path to success after two courts turned down the merger. Cigna’s legal spokesperson further amplified that, stating that it was ‘a near impossibility’ and that no “divestiture package would have solved” the merger’s problems. Bloomberg  See the back story below

Watch for fireworks whatever the decision. Antitrust lawyer David Balto rated its potential “more fun than watching an episode of [the television melodrama] Dallas“. CT Mirror

The Chancery Court action is far more important than Anthem’s ‘petition for writ of certiorari’ to the Supreme Court of the US (SCOTUS) for review of the lower court ruling, citing the following:

  1. The 2 to 1 split in the court decision
  2. That the 1960s court precedents relied on by the District Court must be updated to today’s understandings of economics and consumer benefit
  3. And asserting that the loss of the merger “would limit access to high quality affordable care for millions of Americans and deny them more than $2 billion in medical cost savings annually” from the improved bargaining power of the new entity

(What perhaps was not included was that the merger partner, Cigna, wants out, out, out of the merger, which does tend to put a negative cast on the whole affair, as it did for the DC District Court.)

This Editor believes that the Chancery Court decision to extend for 60 days–into July– is critical to any SCOTUS hearing, as it is unlikely there would be any merit in a review of a dead deal even if there is a potentially novel issue. In the Reuters report, Anthem’s attorney mentioned the SCOTUS petition with a decision date by early July (the end of the term). He confirmed their intent to appeal to the DOJ for a ‘negotiation’ once the Trump Administration had its nominated officials in place. In Bloomberg, Cigna’s attorney’s position is that SCOTUS wouldn’t even consider the petition until September, which would put it past the extension and a decision into the next term.

Petitions for writ of certiorari are the Hail Mary pass–the last-ditch move–of court actions. (more…)

Breaking-The Theranos Story, ch. 41: settling, not fighting, with Partners Fund on fraud

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2017/04/The-big-dig.jpg” thumb_width=”150″ /]Breaking News and Updated. Settled–but not settled? Theranos’ May Day celebration was an announcement of a settlement with investor Partner Fund Management (PFM) LP on their two lawsuits alleging investor fraud. PFM’s funds had invested $96.1 million in Theranos’ February 2014 funding round. The amount and terms of the settlement were, as usual, not disclosed.

PFM’s original filing in Delaware Chancery Court in October claiming fraud on various representations that Theranos had made, such as 98 percent reliability on its small sample Edison labs. The second filing in April [Ch. 40] temporarily blocked Theranos’ added equity offer to investors, an offer which had the important condition of blocking further legal action once accepted [Ch. 38]. PFM had powerful and damaging evidence on its side from 22 deposed former employees and directors to bolster its allegations of investor fraud, which was revealed in snippets from unsealed documents last week.

This settlement, according to reports, ends both court actions and permits Theranos to continue their equity offer to investors. According to Theranos, 99 percent of investors were willing to accept it, which neatly heads off additional legal actions. The offer to C-1 and C-2 investors expires 15 May. Theranos release.

Yet the depositions obtained in this case appear to have taken on a life of their own. Digging down into the WSJ report (not yet paywalled if you go in through the ‘What people are talking about’ right-hand sidebar on LinkedIn, or if you have a subscription) is the interesting tidbit that “Federal investigators have obtained depositions taken in the Partner Fund litigation, including those of former Theranos employees and directors, according to a person familiar with the matter.” The WSJ also filed to have the depositions unsealed on Monday (1 May), which an outside entity can request under the rules of the Delaware Chancery Court even after a case is closed.

Despite settlements with PFM, the state of Arizona, and CMS, Theranos still faces a live investigation from the Securities and Exchange Commission (SEC) and the Justice Department (DOJ). There are also major lawsuits from Walgreens Boots seeking to recoup its $140 million investment (and remove the egg on their corporate face) and the Colman/Taubman-Dye suit in California. The latter action has the potential to become a much larger lawsuit, as the US District Court in Northern California has requested a show-cause from the plaintiffs on including third-party sellers (Lucas Venture Group, Celadon Technology Fund, SharePost) as defendants. It also personally charges Elizabeth Holmes and former CEO Ramesh ‘Sunny’ Balwani (ch. 39).

Time and money are running out–and with a Federal investigation in the mix, the future of Theranos still resembles our picture above.

  • In March, Theranos reported $150 million in cash holdings. With another settlement, how much is left in the bank?
  • That equity offer, expiring in two weeks, may be a moot maneuver. After investors do the math and look at the calendar, they may decide that legal action may be a better way of capturing whatever’s left, before it’s all gone or tied up in Chapter 11. Perhaps PFM is smart indeed in moving to settle early.
  • Federal investigations usually do not end happily, unless you are Mayor De Blasio of NYC. Who knows what high-powered maneuvering is going on behind the scenes to prevent Ms. Holmes’ black turtleneck from becoming orange? And where in the world is co-defendant ‘Sunny’ Balwani?

Additional coverage: TechCrunch, Bloomberg  Our index of Theranos coverage is here.

Anthem to Cigna: This merger is on, despite the appeals court decision, but the clock is ticking

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]The War of the Payers continues.

Update: The DC Court of Appeals released its decision Friday 28 April to deny the Anthem-Cigna merger, upholding the District Court’s decision. This was a 2 to 1 vote that was issued immediately prior to the 30 April merger expiration. It cited that the savings would not mitigate the anti-competitive effects in the national, large group, and local markets, mainly in Medicare Advantage. What has been under-reported is that 11 states plus DC originally joined with the DOJ to enjoin (stop) the merger. In the US system, any healthcare merger also has to be approved by the states, and this merger was a failure in this area. Remarkably, even the dissenting judge cited problems with hospitals and doctors due to the combined company’s negotiating power.

In any rational business deal, this would be the final nail in the coffin, especially with one of the merger partners already wanting to leave. Unless Anthem wants to appeal to the US Supreme Court, this merger has reached The End of the Line. Yet publicly Anthem is pursuing, at least for the time being. In a statement, Anthem expressed “We are committed to completing the transaction and are currently reviewing the opinion and will carefully evaluate our options.”  Court decision in full. Healthcare Dive. MedCityNews.

To recap other recent developments: In February, the two insurers were filing and counter-filing each other in Delaware Chancery Court–Cigna to end their merger, Anthem to continue. Last Wednesday (19 April), Anthem filed an injunction to prevent the deal from expiring as per the merger agreement on 30 April. This injunction may be heard by the Chancery Court on 8 May, according to Anthem documents, but the main court documents are still under seal. (Law 360, via Healthcare Dive 24 April)

In prior Federal court actions, the Federal District Court in DC, based on action by the US Department of Justice, first denied the merger on 8 February on antitrust and anti-competitive grounds [TTA 9 Feb]. Unlike the also denied Aetna-Humana merger, it was publicly known, to the point where it was cited in the District Court decision, that the companies had significant disagreements on the merger. After the denial, Anthem wasted no time in appealing for a reversal of the decision with the DC Court of Appeals. Cigna lost no time in initially wanting no part of any appeal of the ruling by Anthem–and filed in Delaware Chancery Court for $13 bn in damages in addition to the contractual breakup fee of $1.85 bn [TTA 14 Feb]. Two days later, Anthem filed in the same court for an injunction to delay the merger agreement’s legal termination [TTA 16 Feb]. In March, Cigna surprisingly filed a brief in support of Anthem’s appeal (Healthcare Dive). Anthem has also denied rumors of an appeal to the Justice Department to save the merger (Reuters), which is now moot if it ever existed.

As the clock winds down, there remain rivers of bad blood and accusations of bad faith between these two organizations which will continue to be fought in court. Was this merger ever really necessary? No, and it never was, and in our 16 February/21 February update (see analysis), this Editor opines on why Anthem’s to-date persistence in pursuing this has been extraordinarily harmful–to their customers and to both companies.

The Theranos Story, ch. 40: investor fraud revealed in equipment, fake demos, testing

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2017/04/The-big-dig.jpg” thumb_width=”150″ /]Theranos’ ‘Big Dig’ is larger than this German art installation representing a Hole to China. It was as smooth as the turf depicted. Set up some shell companies, buy equipment from Siemens, modify it to take the mini-samples for the Theranos Edison mini-lab–and run their customers’ blood tests on them. Get incentives from a credulous Arizona governor and legislature. Run fake tests for investors on this equipment. Promise $1 bn in 2014 gross profits. Then, when it all comes undone, tell the investors to take additional equity shares and not to sue, or else it’s Chapter 11. Oh yes, and settle with Arizona for nearly $5 million and CMS for $30,000 [Ch. 39].

The latest reveal in the Theranos Saga took place in busy Delaware Chancery Court in a lawsuit brought by investor Partner Fund Management (PFM) LP and two other associated funds, which invested over $96 million in 2014. The unsealed documents, part of the follow-up to a lawsuit originally filed in October 2016 [Ch. 21] and another filed this month to block the equity offer to investors, contain depositions from 22 former employees and (hold the presses) directors. The (paywalled) Wall Street Journal article revealed that Theranos bought commercial blood testing lab equipment from reputable companies including Siemens, modified them to take the miniature samples that Theranos collected, used them to conduct both customer testing and from the filing, “fake ‘demonstrations tests’ for prospective investors and business partners”. Theranos used a shell company, Protegic Procurement Company, to make the purchases. Former director Adm. Gary Roughead, USN (Ret.), was quoted as being unaware of the fact that there were “extensive commercial analyzers in use.”

Now it is not uncommon for competitors’ equipment to be used for reference purposes and testing, especially when the company still is in process for their regulatory approvals. However, the lawsuit claims that customer tests were run on these labs, and not for a limited time as Theranos claims. The demonstration test claims are even more damning as they show fraudulent intent to investors.

The other part of the PFM lawsuit alleges that Theranos investors, including them, were pressured to not sue and take the additional equity deal [Ch. 38] by an attorney representing Theranos, who suggested that the alternative was to seek Chapter 11 bankruptcy protection. “Theranos officials engineered the share offer in a way that would make it impossible for the funds to obtain “any recovery” as part of its bankruptcy filing.” The PFM filing to block was successful. On April 11, Theranos was stopped from going forward with the share-exchange plan, with that hearing scheduled for June 26, not ideal for a company which is buying time before the money runs out. Bloomberg

The ‘cherry on the fraud cake’ is Theranos’ wildly inflated projection of a $1 billion gross profit in 2014. Theranos, of course, states that “The suit is without merit, the assertions are baseless, and the plaintiff is engaging in revisionist history.” Is ‘fake news’ the next claim? Ars Technica, TechCrunch, Fortune, Engadget.

Rest assured that there are many other chapters to come, as the lawsuits continue, including one for $140 million by Walgreens Boots, and the Colman/Taubman-Dye suit in California. Our Theranos and related articles are indexed here.