The Anthem-Cigna Marriage: A Love Story in Three Acts

Even before the first date, Anthem Inc. CEO Joe Swedish was smitten with Cigna Corp.
 
But as in any love story, there would be plenty of drama between then and the July 24 announcement of the two health insurance giants’ $54 billion engagement.
 
At one point, the Anthem board made Swedish break up with Cigna, but then three months later sent Swedish swooping back in with pleasantries and ultimately a bear hug that Cigna couldn’t refuse.
 
And along the way, both Anthem and Cigna flirted with Humana Inc., causing everyone to get jealous. And it appears that Cigna even entertained secret overtures from Minnesota-based UnitedHealth Group.
 
That’s the gist of the 22-page romance novel—err, timeline of events—filed Thursday by Anthem with the U.S. Securities and Exchange Commission.
 
 
Act I: The Youthful Dalliance
 
Swedish’s first contact with Cigna CEO David Cordani was a phone call on May 6, 2014. Both then started checking each other out (corporate online stalking, you might say). Just a month later, Swedish and Cordani met in person and both were already thinking marriage.
 
“This preliminary review suggested that the combination of the two companies could yield immediate value through the realization of synergies and expand consumer choice, quality and affordability, as well as potentially significantly increase the capability of each company to realize its current strategic vision,” wrote the Anthem and Cigna lawyers in their pot-boiler prose. “This preliminary review also indicated that a combination of Anthem and Cigna could be the most attractive strategic alternative available to either company.”
 
Translation: They each thought the other was “THE ONE.”
 
A summer romance ensued. Swedish and Cordani had lots of dates from July through October of 2014. They brought in their CFOs on some meetings. In August of that year, they even signed a mutual confidentially agreement.
 
Then they told their parents. Cordani informed the Cigna board on Sept. 24. Swedish told the Anthem board on Oct. 1.
 
But Cigna wasn’t ready to go exclusive just yet. Cordani had a meeting in Boston on Oct. 9, 2014, with the CEO of “Company A” in the timeline. All signs suggest this was Minnesota-based UnitedHealth Group, according to UBS analyst A.J. Rice.
 
Then on Oct. 23, Cordani and his CFO met with their counterparts at Humana, referred to as Company B in the timeline.
 
Cigna’s executives had a series of meetings in November, December and January with the senior executives at both Anthem and Humana. And on Dec. 11, Cordani had a second meeting with the CEO of UnitedHealth, who cooed in his ear that “if material events or developments were to occur within the health care industry,” he would be “interested in having further conversations with Mr. Cordani.”
 
But in December and January, Humana officials twice told Cigna that they weren't interested anymore.
 
And then at a February meeting in Scottsdale, Arizona, the Anthem board told Swedish and his team that they shouldn’t rush into marriage, and told Swedish to drop his pursuit of Cigna. The board discussed pending antitrust lawsuits against Anthem and the other operators of Blue Cross insurance plans. They worried that if Anthem announced a deal with Cigna, it might just cause another insurer (one without massive litigation over its head) to swoop in with a more bona fide offer.
 
“There were no signs of imminent industry consolidation,” the board concluded, so “there was no immediate rush to combine with Cigna at that time.”
 
Swedish broke the bad news to Cordani later that month.
 
 
Act 2: Facing Spinsterhood, Anthem Gets Pushy
 
But both Swedish and Cordani wanted to get married to someone. So they each decided to pursue Humana, each meeting twice the next month with its CEO Bruce Broussard.
 
In late April, Cordani even proposed, offering to buy Humana for $230 a share.
 
But by then, Aetna Inc. came into the picture. Its CEO Mark Bertolini met with Humana CEO Broussard on March 28 and expressed interest in a deal, according to a separate timeline filed by Aetna after its July 3 agreement to buy Humana for $37 billion.
 
Finally, on May 20, Humana decided to play the field. It told Aetna, Anthem and Cigna that it would entertain their offers.
 
This made Swedish and the Anthem executives worried. That same day, Swedish called Cordani and said “Anthem wanted to aggressively re-engage with Cigna.”
 
Naturally, Cigna was confused at this expression of love, after having been dumped just three months before. Cordani told Swedish he “remained very interested” but “wanted first to understand what had changed since the last time the two parties had spoken.”
 
What had changed was that Anthem was worried about being a spinster. As the company lawyers so eloquently put it, “Anthem senior management considered that the risk of being left out of the remaining consolidation in the health benefits industry outweighed the factors that led the Anthem board of directors to cease discussions in February.”
 
An exchange of love letters followed, which became public back in June. One detail not disclosed previously is that at a June 4 meeting, Cigna’s directors decided the company was not for sale, but then before the meeting ended, reversed and told Cordani to keep up the romance with both Anthem and Humana.
 
But that same day, Humana found a potential problem in its reserves for its Medicare Advantage plans and took itself off the market for 11 days.
 
During this period, UnitedHealth swooped in, making an attractive but non-specific offer to Aetna and making a similar offer to Cigna.
 
The Cigna board discussed UnitedHealth’s proposal but concluded that UnitedHealth had not addressed the potential regulatory barriers to their marriage “in any meaningful manner.” Aetna’s board made a similar determination.
 
It’s not clear that Anthem knew about UnitedHealth’s bid for Cigna, although United’s play for Aetna hit the news at the time. But Anthem got jealous, and asked Cigna to stop its two-timing ways. Cigna refused to sign an exclusivity agreement.
 
The two sides also bickered over sale price, board seats and Cordani’s role in the combined company. Cordani’s role proved especially tricky. His employment agreement was negotiated up until the very day the Anthem-Cigna merger agreement was signed on July 23. And even in the timeline, the two companies present two mutually conflicting versions of whether or not Anthem ever promised Swedish would step aside quickly for Cordani to be CEO of the combined companies.
 
While the Cigna board was discussing Anthem’s latest terms on June 20, it received word that Anthem was giving it a “bear hug”—Anthem was canceling their confidentiality agreement and making the content of their negotiations public. Behind the scenes, Anthem also threatened a hostile takeover attempt.
 
That afternoon, Cordani was on the phone to the CEOs of UnitedHealth and Humana.
 
 
Act 3: The Happy Ending
 
The day after Anthem’s bombshell press release, Cigna issued a stinging response, effectively calling Anthem a risky marriage partner because of the Blue Cross antitrust lawsuits, the fallout from Anthem’s massive data breach (announced in February), and concern the merger would put Anthem in violation of the rules of the Blue Cross and Blue Shield Association.
 
Three days after that, on June 24, Cigna submitted a fresh love letter to Humana, offering to buy the company for $225 per share, paid half in stock and half in cash.
 
But on June 26, Cigna’s executives met with Anthem’s executives to try to start over in their fractured relationship. They reinstated their confidentiality agreement. And Anthem started sharing more information about the concerns Cigna had raised.
 
But Cigna also considered every other option.
 
On July 1, the Cigna board discussed whether to reach out to UnitedHealth to save it from the overbearing Anthem. But the board chose not to. It chose instead to focus on selling to Anthem, buying Humana or remaining independent.
 
The next day, Humana called saying it was interested in a “cash-heavy” offer from Cigna. Cigna said it could do that, but it would have to lower its price. But Aetna had already bid $230 per share for Humana, so Humana decided to go with Aetna.
 
Those two companies announced their engagement the next day.
 
That made an Anthem-Cigna match almost inevitable. Swedish and Cordani spoke on the phone on July 4 and hashed out an agreement. Less than three weeks later, on July 24, they announced it to the world.