Speaker 1: The proposed fifty four billion dollar Signa Anthem merger would
Speaker 1: be the largest healthcare merger in United States history, and
Speaker 1: the federal government's lawsuit to block the merger on anti
Speaker 1: trust grounds is on trial right now. But testimony at
Speaker 1: the trial is raising questions about whether SIGNA CEO David
Speaker 1: Cordani thinks the merger is a good idea. An Anthem
Speaker 1: CEO Joseph Swedish is testified that Anthem kept its efforts
Speaker 1: to plan the integration of the two companies secret from SIGNA.
Speaker 1: We'll be discussing one of the companies themselves are undermining
Speaker 1: their chance of merging with Jennifer Ree, a senior litigation
Speaker 1: analyst for Bloomberg Intelligence, Jennifer Um. There's a lot that's
Speaker 1: really interesting in the testimony of these two CEOs. Let's
Speaker 1: start with the doubts expressed by David Cordani of Signa.
Speaker 1: He's publicly defended the merger, but now he's under oath
Speaker 1: in court and he seems to be saying something different.
Speaker 1: What what's he's saying in court now, Well, what he's
Speaker 1: saying is that Um, in terms of some of the
Speaker 1: pre closing integration planning, that the companies were undergoing which
Speaker 1: is typical you know has come needs are going through
Speaker 1: a merger review to start thinking about the integration that
Speaker 1: they'll be doing after they closed, that there were problems
Speaker 1: between the companies and that they were in particular, Um,
Speaker 1: what I read was that he felt that some of
Speaker 1: the plans that Anthem had instituted or we're thinking about
Speaker 1: would harm harm Signa and would benefit the Blue Cross
Speaker 1: Blue Shield Association more so than Signa. Jen, what is
Speaker 1: the judge looking for? What kind of search is she
Speaker 1: doing for? What kind of facts? Well, first of all,
Speaker 1: you know, what the d J has done is they
Speaker 1: they've had to allege several different kinds of markets where
Speaker 1: there might where this deal could substantially less in competition.
Speaker 1: So the first thing really that she has to do
Speaker 1: is understand what those markets are and listen to what
Speaker 1: the economists have to say about, you know, whether those
Speaker 1: are appropriate markets or not. And that's a big issue
Speaker 1: in this trial because they've alleged the DOJ has alleged
Speaker 1: harm to a national market for you know, large national
Speaker 1: insurers and Anthem Insigna have refuted that that's an appropriate
Speaker 1: market to think about in which there could be harm.
Speaker 1: So that's one of the first things. But you know,
Speaker 1: going back to what Michael had just asked, one of
Speaker 1: the other very big things are the efficiencies claims of
Speaker 1: these companies, because that is a defense to a merger.
Speaker 1: That can be a defense, I should say, to a
Speaker 1: merger that may have some anti competitive effects in the market,
Speaker 1: if that could be outweighed according to the guidelines that
Speaker 1: the d o J uses by efficiencies, then perhaps the
Speaker 1: merger could be allowed to clear. And this is something
Speaker 1: that the companies are relying on here that they believe
Speaker 1: it's very efficient and could lead to lower costs for consumers.
Speaker 1: Um and and and this testimony by Signals CEO undermines
Speaker 1: that defense well. And it sort of undermines the idea
Speaker 1: that the merger would bring a lot of benefits to
Speaker 1: customers who might otherwise choose Signet, doesn't it. Yeah, absolutely,
Speaker 1: you know, it undermines I think in a couple of
Speaker 1: different ways. First of all, if they're just not getting
Speaker 1: along about the way they're going to integrate, it suggests
Speaker 1: that they won't even achieve the efficiencies or might have
Speaker 1: difficulty achieving the efficiencies they allege that will come from this.
Speaker 1: From this combination. That's the first thing. And the second
Speaker 1: thing is this is a of g issue that the
Speaker 1: d o J has said, this is going to keep
Speaker 1: SIGNA from competing as Signa competes today, um and and
Speaker 1: this supports that in a way. So as the trial
Speaker 1: has progressed, is the d o J making a good case?
Speaker 1: You know, I haven't been attending the trial, but from
Speaker 1: what I've been reading and the papers I've read that
Speaker 1: have been filed that, you know, it seems like they're
Speaker 1: making a good case um and and their economists are
Speaker 1: supporting where they're alleging about the markets and harm to
Speaker 1: the markets. Um It's so far it seems like the
Speaker 1: judges bit a bit skeptical of the defendants of the
Speaker 1: insurance companies here and seems to be supporting the d
Speaker 1: j's national market definition, which I think is a big
Speaker 1: deal here because in past insurance cases, this hasn't been
Speaker 1: a market definition that the d J has relied on
Speaker 1: to get settlements and mergers. Well, another unusual thing that
Speaker 1: seems to have happened in the cases that the Anthem
Speaker 1: CEO testified that they've kept their planning process secret from
Speaker 1: the company, signal that they were merging with what what's
Speaker 1: that all of them? Yeah, you know, it's it's very
Speaker 1: strange now now pre closing integration planning is a weird
Speaker 1: thing because you know, before companies closed, but after they've
Speaker 1: signed a merger agreement, they technically still have to behave
Speaker 1: in the market as competitors. So this whole integration planning
Speaker 1: thing is always something that the antitrust lawyers are watching
Speaker 1: very carefully because there is something that's called gun jumping
Speaker 1: that companies can be fined for and can also delay
Speaker 1: Emerger's closing. That if they integrate a little too much,
Speaker 1: they get a little too close and what they're doing
Speaker 1: can actually be an antitrust violation in and of itself. So,
Speaker 1: you know, it seems like Signa's lawyers were probably saying, hey,
Speaker 1: you know, it looks like we're facing this challenge and
Speaker 1: and maybe you should slow down on what you're doing
Speaker 1: with integration. And it seems like Anthem kind of took
Speaker 1: off and did their own thing and kept its secret
Speaker 1: from Signa, and you know it, it's definitely strange. Although
Speaker 1: some integration planning can take place in secret, but it
Speaker 1: still just doesn't bode well for these companies being able
Speaker 1: to achieve these efficiencies. Does it seem as if they're
Speaker 1: learning more as the trial goes on and perhaps wanting
Speaker 1: this merger less even Well, you know, that's a good question,
Speaker 1: an interesting question, because I think there's been speculation for
Speaker 1: quite a long time that SIGNA is not that interested
Speaker 1: anymore in this deal, that there was trouble at the
Speaker 1: beginning even getting into a purchase agreement, into an agreement.
Speaker 1: A lot of controversy about that it took them a
Speaker 1: long time to come to an agreement. Um, some think
Speaker 1: it was just in reaction to ETNA humanity, you know,
Speaker 1: deciding to emerge. That was kind of a race to
Speaker 1: get into a mergered yourself and SIGNA will get if
Speaker 1: if the deal is blocked for because of regulators, because
Speaker 1: of antitrust, SIGNA would get one point eight five billion
Speaker 1: dollars a fee from Anthem. But SIGNA has to continue
Speaker 1: to defend and support this deal all the way through
Speaker 1: to their end date, which is I think in the
Speaker 1: first quarter or second quarter of two thousand seventeen, in
Speaker 1: order to get that fee. So do you think that
Speaker 1: maybe there's some speculating a bit here, But do you
Speaker 1: think that there's some motivation on the part of the
Speaker 1: SIGNA executives. But you know, including their CEO, perhaps not
Speaker 1: to be is enthusiastick here as they might otherwise be.
Speaker 1: I it could be, It could be. Now, the thing
Speaker 1: is they have to they have a fine line they
Speaker 1: have to tread because according to their purchase agreement, they
Speaker 1: will not be able to collect that reverse termination fee
Speaker 1: that's what it's called when the buyer pays the seller um.
Speaker 1: They won't be able to collect that fee if the
Speaker 1: failure to get regulatory approval is due to a willful
Speaker 1: breach by SIGNA. So you know, they don't want to
Speaker 1: put themselves into a position where that kind of an
Speaker 1: allegation could be made. And at the very least ANTHEM
Speaker 1: could later, let's say this all falls apart and they say,
Speaker 1: you know, you ows this termination fee, that Anthem could
Speaker 1: then try to fight that and have some grounds to
Speaker 1: fight that. Why is the judge bifurcating or making the
Speaker 1: trial into two separate many trials? I believe the judge
Speaker 1: probably did that because the d o J sort of
Speaker 1: alleged two different kinds of buckets of harm here and
Speaker 1: they're quite different. So one bucket of harm is in
Speaker 1: this national market where where the d o J envisions
Speaker 1: some large company with employ ease spread across the country
Speaker 1: wanting to contract negotiating contract with just one entity to
Speaker 1: serve all their employees across the country, particularly for self
Speaker 1: insured employers like Bloomberg Um, that in in that market
Speaker 1: there will be harm. But the DJ is also alleged
Speaker 1: separately in the more traditional insurance markets that in local
Speaker 1: metropolitan areas I think thirty five they claim where these
Speaker 1: two companies compete head to head to you know, ensure
Speaker 1: large group employers in those local regions, that that's a
Speaker 1: different bucket of harm. And so the kind of economic
Speaker 1: analysis and and data that the judge has to evaluate
Speaker 1: will be different depending on whether it's this national market
Speaker 1: for you know, self insured employers or whether it's just
Speaker 1: your typical regional um commercial large group employers. So, Jennifer,
Speaker 1: you have had some doubts about whether this merger was
Speaker 1: going to be approved for some time. We're part way
Speaker 1: through the trial now, we've got had some pretty interesting testimony.
Speaker 1: What do you think is going to happen as we
Speaker 1: move towards the judge's decision. Yeah, I don't think it
Speaker 1: looks good for the insurers. I think that the argument
Speaker 1: they're making is not usually a winning argument. That efficiencies
Speaker 1: will win out the day where there are otherwise are
Speaker 1: anti competitive effects. This this is something that needs to
Speaker 1: be evaluated in mergers, and it is meant to be
Speaker 1: sort of a mitigating factor, but it just doesn't generally
Speaker 1: win the day where there will be some lessening of harm.
Speaker 1: And you're talking about healthcare markets, and you're talking about
Speaker 1: people's health and their costs for doctors, which is a
Speaker 1: very sensitive area right now, and and one of the
Speaker 1: ways that the companies claim that they'll be able to
Speaker 1: lower consumers costs looks like it's because they'll have better
Speaker 1: clout as a combined company to be able to reduce
Speaker 1: the reimbursement rates they're paying to providers like doctors, hospitals.
Speaker 1: You know, that is not really a great argument to make.
Speaker 1: Where the issue is when you start squeezing these doctors
Speaker 1: and dictating terms, it could reduce the quality of healthcare.
Speaker 1: Thank you very much to Jennifer re As, senior litigation
Speaker 1: analysts for Bloomberg Intelligence, talking about the Anthem Signal merger
Speaker 1: and the unusual testimony of the c E. O s
Speaker 1: at that trial, which raised some questions about whether this
Speaker 1: merger has got any chance of going through at all.