(Bloomberg) — Anthem Inc. lost its bid to overturn a court ruling that blocked its planned takeover of rival Cigna Corp., capping a nearly two-year battle to complete a combination of two of the biggest health insurers in the U.S.
The federal appeals court in Washington upheld a lower court ruling by a 2-1 vote, according to an order issued Friday. Cigna shares fell as much as 3.3% on the ruling.
“We hold that the district court did not abuse its discretion in enjoining the merger based on Anthem’s failure to show the kind of extraordinary efficiencies necessary to offset the conceded anticompetitive effect of the merger,” the panel wrote.
The decision is a likely final blow in Anthem’s bid to complete the $48 billion merger, which a lower-court judge had said should be stopped because it risked undermining competition in health insurance markets. The two companies have since sued one another, with Cigna seeking $1.85 billion breakup fee and Anthem blaming its rival for undermining their legal defense of the deal.
A Delaware judge has barred Cigna from walking away from the merger pending the results of a May 8 hearing at which Anthem will ask the court to extend that order through the end of litigation there. Rejection of that request would effectively set Cigna free.
The Cigna takeover was one of two insurer deals that the Justice Department’s antitrust division stopped earlier this year to prevent the industry’s biggest players from consolidating. The other was Aetna Inc.’s planned acquisition of Humana Inc. While Aetna and Humana terminated their deal after losing at trial, Anthem appealed.
Last month, Anthem told the appeals court that the February decision blocking the deal was wrong because it rejected the lower medical costs the merger would provide to companies. Anthem says that by combining with Cigna it can produce $2.4 billion in savings by lowering reimbursements paid to doctors and hospitals.
The Justice Department has countered that U.S. District Judge Amy Berman Jackson was correct to dismiss Anthem claims about the savings. In her decision, the judge said the savings were “not verifiable” and weren’t specific to the merger. That’s because the companies don’t have to merge for customers to gain access to Anthem’s lower rates. Customers who value those discounts above Cigna’s offerings can simply choose Anthem as their insurer, she said.
In February, Cigna and Anthem sued one another in Wilmington, trading accusations of harassment and sabotage, leaving in question whether either could be faulted for the failure of the transaction to withstand federal scrutiny and whether the Bloomfield, Connecticut-based Cigna can collect its fee from Anthem.
The case is U.S. v. Anthem Inc., 17-5024, U.S. Court of Appeals for the District of Columbia.