The proposed fifty four billion dollar Signa Anthem merger would be the largest healthcare merger in United States history, and the federal government's lawsuit to block the merger on anti trust grounds is on trial right now. But testimony at the trial is raising questions about whether SIGNA CEO David Cordani thinks the merger is a good idea. An Anthem CEO Joseph Swedish is testified that Anthem kept its efforts to plan the integration of the two companies secret from SIGNA.
We'll be discussing one of the companies themselves are undermining their chance of merging with Jennifer Ree, a senior litigation analyst for Bloomberg Intelligence, Jennifer Um. There's a lot that's really interesting in the testimony of these two CEOs. Let's start with the doubts expressed by David Cordani of Signa. He's publicly defended the merger, but now he's under oath in court and he seems to be saying something different.
What what's he's saying in court now, Well, what he's saying is that Um, in terms of some of the pre closing integration planning, that the companies were undergoing which is typical you know has come needs are going through a merger review to start thinking about the integration that they'll be doing after they closed, that there were problems between the companies and that they were in particular, Um, what I read was that he felt that some of
the plans that Anthem had instituted or we're thinking about would harm harm Signa and would benefit the Blue Cross Blue Shield Association more so than Signa. Jen, what is the judge looking for? What kind of search is she doing for? What kind of facts? Well, first of all, you know, what the d J has done is they they've had to allege several different kinds of markets where there might where this deal could substantially less in competition.
So the first thing really that she has to do is understand what those markets are and listen to what the economists have to say about, you know, whether those are appropriate markets or not. And that's a big issue in this trial because they've alleged the DOJ has alleged harm to a national market for you know, large national insurers and Anthem Insigna have refuted that that's an appropriate market to think about in which there could be harm.
So that's one of the first things. But you know, going back to what Michael had just asked, one of the other very big things are the efficiencies claims of these companies, because that is a defense to a merger. That can be a defense, I should say, to a merger that may have some anti competitive effects in the market, if that could be outweighed according to the guidelines that the d o J uses by efficiencies, then perhaps the
merger could be allowed to clear. And this is something that the companies are relying on here that they believe it's very efficient and could lead to lower costs for consumers. Um and and and this testimony by Signals CEO undermines that defense well. And it sort of undermines the idea that the merger would bring a lot of benefits to customers who might otherwise choose Signet, doesn't it. Yeah, absolutely, you know, it undermines I think in a couple of
different ways. First of all, if they're just not getting along about the way they're going to integrate, it suggests that they won't even achieve the efficiencies or might have difficulty achieving the efficiencies they allege that will come from this. From this combination. That's the first thing. And the second thing is this is a of g issue that the d o J has said, this is going to keep SIGNA from competing as Signa competes today, um and and
this supports that in a way. So as the trial has progressed, is the d o J making a good case? You know, I haven't been attending the trial, but from what I've been reading and the papers I've read that have been filed that, you know, it seems like they're making a good case um and and their economists are supporting where they're alleging about the markets and harm to
the markets. Um It's so far it seems like the judges bit a bit skeptical of the defendants of the insurance companies here and seems to be supporting the d j's national market definition, which I think is a big deal here because in past insurance cases, this hasn't been a market definition that the d J has relied on
to get settlements and mergers. Well, another unusual thing that seems to have happened in the cases that the Anthem CEO testified that they've kept their planning process secret from the company, signal that they were merging with what what's that all of them? Yeah, you know, it's it's very strange now now pre closing integration planning is a weird thing because you know, before companies closed, but after they've signed a merger agreement, they technically still have to behave
in the market as competitors. So this whole integration planning thing is always something that the antitrust lawyers are watching very carefully because there is something that's called gun jumping that companies can be fined for and can also delay Emerger's closing. That if they integrate a little too much, they get a little too close and what they're doing
can actually be an antitrust violation in and of itself. So, you know, it seems like Signa's lawyers were probably saying, hey, you know, it looks like we're facing this challenge and and maybe you should slow down on what you're doing with integration. And it seems like Anthem kind of took off and did their own thing and kept its secret
from Signa, and you know it, it's definitely strange. Although some integration planning can take place in secret, but it still just doesn't bode well for these companies being able
to achieve these efficiencies. Does it seem as if they're learning more as the trial goes on and perhaps wanting this merger less even Well, you know, that's a good question, an interesting question, because I think there's been speculation for quite a long time that SIGNA is not that interested anymore in this deal, that there was trouble at the beginning even getting into a purchase agreement, into an agreement. A lot of controversy about that it took them a
long time to come to an agreement. Um, some think it was just in reaction to ETNA humanity, you know, deciding to emerge. That was kind of a race to get into a mergered yourself and SIGNA will get if if the deal is blocked for because of regulators, because of antitrust, SIGNA would get one point eight five billion
dollars a fee from Anthem. But SIGNA has to continue to defend and support this deal all the way through to their end date, which is I think in the first quarter or second quarter of two thousand seventeen, in order to get that fee. So do you think that maybe there's some speculating a bit here, But do you think that there's some motivation on the part of the SIGNA executives. But you know, including their CEO, perhaps not to be is enthusiastick here as they might otherwise be.
I it could be, It could be. Now, the thing is they have to they have a fine line they have to tread because according to their purchase agreement, they will not be able to collect that reverse termination fee that's what it's called when the buyer pays the seller um. They won't be able to collect that fee if the failure to get regulatory approval is due to a willful breach by SIGNA. So you know, they don't want to put themselves into a position where that kind of an
allegation could be made. And at the very least ANTHEM could later, let's say this all falls apart and they say, you know, you ows this termination fee, that Anthem could then try to fight that and have some grounds to fight that. Why is the judge bifurcating or making the trial into two separate many trials? I believe the judge probably did that because the d o J sort of alleged two different kinds of buckets of harm here and
they're quite different. So one bucket of harm is in this national market where where the d o J envisions some large company with employ ease spread across the country wanting to contract negotiating contract with just one entity to serve all their employees across the country, particularly for self insured employers like Bloomberg Um, that in in that market
there will be harm. But the DJ is also alleged separately in the more traditional insurance markets that in local metropolitan areas I think thirty five they claim where these two companies compete head to head to you know, ensure large group employers in those local regions, that that's a
different bucket of harm. And so the kind of economic analysis and and data that the judge has to evaluate will be different depending on whether it's this national market for you know, self insured employers or whether it's just your typical regional um commercial large group employers. So, Jennifer, you have had some doubts about whether this merger was going to be approved for some time. We're part way through the trial now, we've got had some pretty interesting testimony.
What do you think is going to happen as we move towards the judge's decision. Yeah, I don't think it looks good for the insurers. I think that the argument they're making is not usually a winning argument. That efficiencies will win out the day where there are otherwise are anti competitive effects. This this is something that needs to be evaluated in mergers, and it is meant to be sort of a mitigating factor, but it just doesn't generally win the day where there will be some lessening of harm.
And you're talking about healthcare markets, and you're talking about people's health and their costs for doctors, which is a very sensitive area right now, and and one of the ways that the companies claim that they'll be able to lower consumers costs looks like it's because they'll have better clout as a combined company to be able to reduce the reimbursement rates they're paying to providers like doctors, hospitals. You know, that is not really a great argument to make.
Where the issue is when you start squeezing these doctors and dictating terms, it could reduce the quality of healthcare. Thank you very much to Jennifer re As, senior litigation analysts for Bloomberg Intelligence, talking about the Anthem Signal merger and the unusual testimony of the c E. O s at that trial, which raised some questions about whether this merger has got any chance of going through at all.