From the very start, Cigna has been cautious about regulatory hurdles that could pose a roadblock to its acquisition by Anthem. Eight months after contentious negotiations that resulted in a $54 billion merger deal, Cigna warned investors for the approval process could now drag on into next year.
"While the company continues to work toward achieving regulatory approval as quickly as possible and to target a closing date in the second half of 2016, the closing will ultimately be subject to the approval and timing of the regulators," the firm said in its first-quarter earnings report, adding for the first time that the regulatory review could now drag on into 2017.
"In light of the complexity of the regulatory process and the dynamic environment, it is possible that such approvals may not be obtained in 2016," the company said in its regulatory earnings filings.
Cigna shares fell more than 2 percent on Friday, despite the fact that the nation's fifth-largest insurer reported earnings of $2.32 per share, 16 cents above the analyst consensus estimate. The company had previously forecast 2016 earnings between $8.85 and $9.25 per share. It now sees earnings between $8.95 to $9.35 per share.
Cigna's warning was in contrast to Anthem's comments during its earnings call last month, when Chairman and CEO Joseph Swedish again expressed confidence that the deal remains on track.
If the deal is not approved by the end of April next year, Anthem would be required to pay Cigna a $1.85 billion break-up fee. An Anthem spokeswoman reaffirmed the company's confidence the deal will close.
"Although our merger agreement with Cigna gives us until April 30, 2017, to obtain regulatory approvals, we continue to believe that we will obtain such approvals and close in the second half of 2016," said Jill Becher, staff vice president of communications at Anthem.
Wedbush analyst Sarah James said despite Cigna's warning, she believes that the Cigna deal will ultimately be approved by anti-trust regulators at the Department of Justice, along with Aetna's proposed $37 billion acquisition of Humana.
"We believe there are alternative ways to structure membership that could in some cases alleviate some market share concerns and potentially lessen divestitures," James said.
At this week's Sohn investor conference, Glenview Capital founder Larry Robbins also expressed confidence that both deals would be approved by the DOJ.
"The majority of states have already signed off on both deals," Robbins said. "Many people who've looked at it have said, on pure case law, that both deals should close; but on public policy they realize that there's legitimate public policy concerns about any consolidation in health care."
But Ira Gorsky, an event-driven analyst at Elevation, says Anthem-Cigna faces bigger hurdles than the Aetna-Humana transaction. It has experienced greater opposition from physicians and hospitals because of Anthem's size as the nation's largest Blue Cross plan operator.
Anthem's large presence within the Blue Cross provider network makes it more complicated to divest its plans in states that already overlap with large Blue Cross nonprofits. Any kind of divestiture plan would likely require regulatory oversight, and Gorsky said that will make regulators more inclined to block the merger.
"If the DOJ believes the Anthem remedy package is unworkable because it is overly complex or requires ongoing supervision, I expect the DOJ to challenge," he said.