NEW YORK, Feb 17 (WN) - Banks advising
healthcare insurance companies Anthem and Cigna on their mega-merger could be
in for a longer than expected assignment as the two health insurance companies
square off in court, suing and counter-suing each other over the proposed
combination.
After a US federal court blocked the US$54bn
tie-up on antitrust grounds, Cigna quickly attempted to pull the plug on the
merger and demand its US$1.85bn in break-up fees and US$13bn in damages to
cover "the amount of premium that Cigna shareholders did not realise as a
result of the failed merger process."
One adverse ruling, however, is not
sufficient to call off a multi-billion merger months in the making. At least
that is Anthem's view. Anthem blocked Cigna from cancelling the deal, winning a
decision in a Delaware Chancery court that forced Cigna to stay engaged until
April 30, the end of the latest deal extension to which the company agreed.
That could conceivably give Anthem some time
to pursue an expedited appeal. Anthem said it believes that there is still
sufficient time and a viable path forward potentially to complete the
transaction.
At the same time the company argued that
Cigna, which attempted to sabotage the merger and the appeal, is not entitled
to break-up fees or damages. Markets were surprisingly upbeat about the latest
upheaval in the sector.
Bankers and lawyers away from the transaction
say the appeal is now just an element in the brawl between the two companies,
but the deal itself is dead.
"There is so much bad blood between
these two companies now that any deal is unlikely even if Anthem wins on
appeal," said one M&A attorney. "Once companies start suing each
other for billions, there's never going to be a consensual merger agreement."
And that puts the banks advising them in the middle.
UBS and Credit Suisse are advising Anthem.
UBS is expected to receive fees of US$30m, of which US$24m is contingent on the
deal closing. Credit Suisse is set to receive US$15m, with US$9m of that
contingent on closing.
Morgan Stanley, which is advising Cigna, is
expecting US$81m in fees, US$60m of which vanishes if the deal falls apart.
Banks advising selling companies (in this case Cigna) frequently take a
percentage of the breakup fee, however.
At the end of the day the banks are trying to
stay out of the fray to ensure that if another deal is in the pipeline they
still have a client, said an M&A banker. It's possible, though, that
bankers from either side could be called on to testify during ongoing
litigation.
As the two insurers square off, attorneys say
the banks are relatively safe. The engagement letters for most transactions
typically indemnify financial advisers for basically everything except gross
negligence or their own wilful misconduct.
SUCKED IN
If the financial advisers do get sucked into
lawsuits – and it remains possible that one or both companies will seek to
blame their bankers for the debacle – it will probably mean a longer
involvement than they were expecting, but no real danger. Unless there were
some egregious facts showing that the advisers did something wrong, they are
likely to be fully indemnified, said another attorney.
As the healthcare industry moves to
consolidate, it may be hard to argue that the banks, not the companies, drove
the merger despite antitrust concerns. Banks can also take comfort from the
fact that the deal fell apart on antitrust grounds.
There is typically a distinct line separating
bankers and lawyers in M&A deals, and antitrust vetting falls on the
lawyer's side of the line.The banks were probably not deeply involved with the
antitrust work and subsequently may not be very involved in the litigation.
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