What Anthem and Cigna Are Fighting About

wsj.com: There’s been a hefty amount of infighting behind the scenes of Anthem’s $48 billion proposed purchase of Cigna, as the Journal detailed in a story on the front page of Monday’s paper.

A series of letters exchanged over the past several weeks, which were reviewed by the Journal, show a level of rancor that’s unusual even in the rough-and-tumble world of corporate takeovers. (Also, lawyerly burns like this one: “Suffice it to say that we disagree with just about every characterization and assertion that you make with respect to the matters raised in your letters—other than your suggestion not to continue a correspondence.”)

People on both sides worry the squabbling, and the genuine disagreements that underlies it, could delay or derail antitrust approvals. Typically, that clearance is tougher to get if companies aren’t in sync, which is why you rarely see hostile deals that face big regulatory hurdles.

Investors turned extra bearish on the deal today. Cigna shares fell as much as 4.4% to $125.54 Monday, and the gap between Cigna’s trading price and the value of the cash-and-stock offer, known as the “spread,” widened from $42.05 as of Friday’s close to more than $47.

Here are some topics of disagreement:

Express Scripts lawsuit. In March, eight months after the two companies signed their deal, Anthem sued Express Scripts Holding Co., a major drug payer, for about $15 billion in damages, claiming Express Scripts overcharged Anthem for prescription drugs.

Cigna says the suit could complicate the merger’s antitrust review by introducing “extraneous” issues and serving up a “sideshow” for the Justice Department. It says the suit is a breach of the merger agreement, which requires both companies to operate their businesses as usual.

Anthem says it told Cigna months ago, early in their merger talks, that an ongoing dispute with Express Scripts might lead to a lawsuit. It also says Cigna’s general counsel signed off on the strategy. And in any event, Anthem says, suing Express Scripts for a better bargain on drugs can only help the combined company.

Regulatory approvals. Anthem says Cigna is dragging its feet on submissions to DOJ and, in at least one case, submitted data in the wrong format. Anthem says it had expected DOJ to complete its review by June 8, but that deadline was extended 23 days “due to Cigna’s incomplete data submission,” and that regulators have indicated it could drag out further. The companies are set to meet with DOJ officials including top cop Bill Baer the week of June 20, according to the letters.

Cigna says it needed extra time to clean up “flaws in the Anthem draft white papers [that] are too numerous to catalogue fully,” including one that failed to address a key issue DOJ had raised. Broadly, it says Anthem is the one bungling the review process by making weak, “piecemeal” arguments to regulators and by failing to formulate a backup plan should the DOJ challenge the deal.

Governance. Leadership and specifically the role of Cigna Chief Executive David Cordani was a key point of contention early in the merger talks, and has reemerged. In January, Anthem CEO Joseph Swedish offered Mr. Cordani oversight over some, but not all, of the three business lines the combined company would have. Mr. Cordani, with the support of his board, pushed back, and Anthem agreed to expand his authority to all three. The issue is mostly resolved, people familiar with the matter say, but has contributed to ongoing tensions on other fronts.

There are other signs that lines of communication are fraying. In one letter, Mr. Swedish says Anthem “shares [Cigna's] concerns about how our integration planning efforts are proceeding” and suggests that, after each meeting of the joint integration committee, there be a separate meeting between the two CEOs and some board members to discuss. Mr. Cordani declines, citing concerns about “gun-jumping” under antitrust rules.

Integration. Anthem says Cigna is holding back key information about its business until it gets a “clearer signal” from DOJ that the deal is likely to be approved. Mr. Swedish, in a letter to Cigna’s board, says that’s understandable but making it hard for Anthem to calculate the deal’s synergies, which are critical for integration planning and for defending the deal to antitrust regulators. (The idea there is that savings wrung from the merger could be passed on to customers, making the deal pro-competition.) Anthem also says Mr. Cordani has refused to make some Cigna employees available for interviews, delaying efforts to finalize who will do what jobs at the combined company.

Cigna says Mr. Swedish is strong-arming the integration process, demanding the right to personally appoint senior executives at the combined company. It also says Anthem is laser-focused on cutting costs rather than finding ways the combined company could grow revenues.

Mashing two businesses together is tough under the best of circumstances. ?It is  particularly complicated ?here ?because Anthem’s affiliation with Blue Cross Blue Shield. To keep its licenses, the combined company must get two-thirds of its national plan revenue from Blue-branded plans, and 80% in the 14 states in which Anthem currently operates under the Blue name. That will require the type of nitty-gritty planning that won’t be easy if the two sides are bickering.

As a licensed agent with HealthMarkets, I (Robert Morgen) am sharing this article with my LinkedIn community. I serve Nevada, Arizona, Texas, & South Carolina as a Health Benefits Adviser.