In a pair of widely anticipated lawsuits, the Department of Justice said the two multi-billion dollar mergers would reduce competition, raise prices for consumers and stifle innovation if the number of large, national insurers were to fall from five to three, according to Reuters and multiple other news outlets. Latest news developments at 4:19 p.m.
“We will not hesitate to intervene. We will not shy away from complex cases,” U.S. Attorney General Loretta Lynch told a news conference today. “We will protect the interests of the American people.”
Although the DOJ had signaled its opposition a week ago, today’s suits were still a stunning turn of events for Humana, which announced its planned $37 billion tie-up with Aetna of Hartford a year ago. The agency’s move immediately threw into doubt the future of the Fortune 500 company, founded in 1961 by attorneys and Kentucky natives David A. Jones and Wendell Cherry with a single nursing home. With 12,500 workers in Louisville alone, it’s one of the city’s biggest private employers.
The DOJ’s move was the latest example of the Obama administration challenging massive combinations in major industries, from oilfield services to telecommunications, according to Reuters. “We have no doubt that these mergers would reduce competition from what it is today,” said Principal Deputy Associate Attorney General William Baer, who spearheaded the antitrust reviews.
Humana shares roared 8% higher, closing at $171.53 a share, up $13.12, after the news broke shortly before noon. That gain may be due to the insurer’s raising full-year earnings guidance. In a press release amid the DOJ news, Humana said the higher guidance is primarily the result of better-than-anticipated year-to-date performance for its individual Medicare Advantage and Healthcare Services businesses, partially offset by continued challenges in the individual commercial medical business. Humana also said it plans to exit eight of 19 state Obamacare health care exchanges.
The stock’s rise may also reflect Wall Street’s preference for certainty over doubt. With the DOJ’s suit, stockholders now know what may be the worst. More than 10 million shares changed hands by the close of trading at 4 p.m. ET, nearly four times average volume.
Aetna’s stock rose a slimmer 1.6%, closing at $118.30. Unlike Humana’s, Aetna’s shares hadn’t been beaten down as much in the week since the DOJ’s opposition became clear last Thursday and Friday.
Will ‘vigorously defend’ plan
In the Humana-Aetna case, the government focused on the companies’ offering for Medicare Advantage and their ability to compete on public exchanges that were set up by the Affordable Care Act, according to The New York Times.
Humana and Aetna said they would “vigorously defend” their pending merger. The Hartford company said previously that it would challenge a DOJ decision to block the merger, the Times said. Cigna said it was evaluating its options but did not expect the transaction to close anytime soon, “if at all.”
Aetna CEO Mark Bertolini said the company has proposed divesting enough assets to ensure competition in markets where it overlaps with Humana.
“If we can’t come to a negotiation on what markets to divest, although we have two very complete remedies in front of the Department of Justice now, I think I’m willing to let a judge decide,” Bertolini told business news channel CNBC, according to Reuters. “We’ll go all the way we need to make this happen.”
At least two states joined the DOJ suits. Illinois moved against Humana-Aetna, according to the Chicago Tribune, and Tennessee against Anthem-Cigna, said the Knoxville News-Sentinel.
Frank Morgan and his team at RBC Capital Markets looked at a review by international law firm Arnold & Porter of the more than 1,600 proposed mergers in 2015, of which the FTC and DOJ collectively brought formal actions in 34 cases, according to Barron’s.
“Of these, the vast majority (23 or 68%) were resolved by consent decree,” the RBC team found.
Would create a colossus
But for Humana-Aetna to reach such a settlement, they might need to so fundamentally alter the deal’s terms that it no longer makes business sense.
If it can be salvaged, it would create an insurance colossus, with a combined $114 billion in annual revenue, up to 60 million members, and 110,000 employees. Humana has more than 21.3 million members and does business in all 50 states. It has approximately 50,000 employees, including those nearly 13,000 in Louisville housed in the company’s iconic skyscraper on Main Street downtown. Last year’s Humana revenues were $54 billion.
Anthem and Cigna announced their proposed $48 billion merger on July 24, three weeks after Aetna and Humana announced their own deal.
Quarrels have broken out behind the scenes of Anthem’s proposed acquisition of Cigna, as the health insurers seek regulatory approval for their landmark $48 billion deal, according to a series of letters reviewed by The Wall Street Journal. “People on both sides say the squabbles could delay or derail antitrust approvals, which are typically harder to obtain if both parties aren’t in sync,” 
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