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Health insurers ready to fight merger challenge on competition grounds

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The U.S. Justice Department reportedly is preparing lawsuits to block mergers that would combine four of the five largest U.S. health insurers, but analysts say the insurers are expected to fight any litigation to block the deals.

Federal antitrust regulators are concerned that the multibillion-dollar mergers between Aetna Inc. and Humana Inc., and Anthem Inc. and Cigna Corp., would stifle competition and harm health insurance customers, and that proposed divestitures are unlikely to influence the Justice Department's decision, Bloomberg and Reuters reported Tuesday.

The Justice Department litigation should be filed within the next two weeks, according to the reports.

The news, which prompted health insurers' stock prices to drop, hit Humana the hardest. Its shares fell 3.9% Tuesday to $153.38 at market close. Aetna stock fell 2.7% to $115.05. Anthem's stock dipped 2.2% to $132.06 while Cigna's stock also fell 2.13% to $130.30.

The expected Justice Department litigation “falls in line with what we've been hearing for the past couple of months. It's not a major surprise, but it is going to cause a lot of issues for these insurers moving forward,” Vishnu Lekraj, senior equity analyst at Morningstar Inc. in Chicago, said Tuesday.

“We expect both companies will sue to block such a U.S. Department of Justice order, though view (Anthem-Cigna's) chances at winning as slim,” Ana Gupte, an analyst at Leerink Partners L.L.C., said Tuesday in a research note.

“Our view has been that if logic and rational thinking play a primary role in the decision, that both deals should be allowed to proceed,” Thomas A. Carroll, an analyst at Stifel Nicolaus & Co., said Tuesday in a research note. “However, if politicking takes hold, it will be difficult to forecast a result.”

“We don't comment on rumors or speculation, but we are steadfast in our belief that this deal is good for consumers and the health care system as a whole,” an Aetna spokesman said Tuesday.

An Anthem spokeswoman and a Cigna spokesman declined to comment. Humana did not respond to requests for comment.

A spokesman for the Justice Department also declined to comment.

The health insurers are expected to fight for the deals in court if the Justice Department does sue, which sources said could take months to resolve.

Previous litigation

The Justice Department has tried to halt health insurer mergers previously, but its 2012 challenge of the merger of Humana and Arcadian Management Services Inc. and its 2008 suit to block UnitedHealth Group Inc.'s merger with Sierra Health Services Inc. both were resolved with divestitures.

While the Justice Department could take a similar stance in the $54 billion Anthem-Cigna and $37 billion Aetna-Humana mergers and propose a resolution while bringing the lawsuit, the federal agency also could file a suit that “offers no clear resolution … or requires significantly high divestitures that would make the deal unattractive,” James Sung, New York-based associate director and insurance credit analyst at Standard & Poor's Corp., said Tuesday in an email.

Analysts have said the Anthem-Cigna combination faces a greater challenge since there are fewer buyers of the administrative services and other employer business that likely would have to be divested.

Stephen Zaharuk, New York-based senior vice president at Moody's Investors Service Inc., said recently that Anthem-Cigna had a 25% of sealing the deal, while Aetna-Humana had a 50% probability of closing. He said it would be difficult to imagine one closing without the other, thus diminishing Aetna and Humana's chances.

But Ms. Gupte and other analysts have said they expect the Aetna-Humana deal to get approved — chances Ms. Gupte puts at above 80%. But she sees the Anthem-Cigna deal as unlikely to be completed.

Without the mergers, the four health insurers are unlikely “to get the scale they wanted with the mergers,” Mr. Sung said.

That would make UnitedHealth “the clear indirect winner,” because it would hold its throne as the largest national health insurer, he said.