Anthem-Cigna and Aetna-Humana breakup provisions, dissected

News that the U.S. Department of Justice is going to court to block Anthem's efforts to acquire Cigna Corp. and Aetna's effort to acquire Humana raises an important question: How much cash could the acquisition targets get if the deals die?

Indianapolis-based Anthem has been trying to acquire Bloomfield, Connecticut-based Cigna for about $48 billion in cash and stock.

Hartford-based Aetna agreed to pay about $37 billion in cash and stock for Louisville, Kentucky-based Humana.

Like most publicly traded companies involved in major deals, negotiators included provisions for what might happen if the deals collapsed in both the Anthem-Cigna merger agreement and the Aetna-Humana agreement.

If Cigna, Humana or both end up getting deal breakup cash, the cash could be used for purposes such as paying extra dividends to shareholders, improving health coverage value — or making acquisitions.

Here's a look at the deal termination provisions included in the agreements, and in the related documents sent to shareholders with the agreements.

Anthem executives talked about the termination fee in a conference call with securities analysts when they announced the Cigna deal. (Image: Thinkstock)

Anthem executives talked about the termination fee in a conference call with securities analysts when they announced the Cigna deal. (Image: Thinkstock)

1. Anthem could end up having to pay Cigna $1.85 billion. Aetna could have to pay Humana $1 billion.

The Anthem-Cigna deal agreement says Anthem could have to make its "reverse termination fee" payment if the deal fails to close for antitrust reasons by Jan. 31, 2017. The companies can extend that deadline to April 30, 2017.

Either Aetna or Humana could terminate the Aetna-Humana deal, and make their termination fee payable, if their deal fails to close by Dec. 31, 2016.

Aetna and Humana started talking about a termination fee about three months into negotiations. (Image: Thinkstock)

Aetna and Humana started talking about a termination fee about three months into negotiations. (Image: Thinkstock)

2. Aetna and Humana talked about termination fees sooner than Anthem and Cigna.

Anthem and Cigna say in a description of the background for their deal that they started talking about making a deal in May 2014. The background notes show their negotiators first mentioned a deal termination fee provision in July 2015.

Aetna and Humana say they started talking about making a deal in March 2015, and that they began talking about a termination fee provision in June 2015.

Both deals involved a series of termination fee proposals and counterproposals. (Image: Thinkstock)

Both deals involved a series of termination fee proposals and counterproposals. (Image: Thinkstock)

3. The termination fees were a major focus of deal negotiations.

Cigna started out asking for a reverse termination fee equal to 8 percent of the equity value of the deal. Anthem bargained that amount down to about 3.8 percent of the value.

Humana started out asking for a termination fee equal to 7 percent of Aetna's own equity value. The companies later talked about setting a regulatory termination fee at $450 million, then raised that amount to $1 billion in the final document.

The Aetna-Humana agreement includes different levels of termination fees. (Image: Thinkstock)

The Aetna-Humana agreement includes different levels of termination fees. (Image: Thinkstock)

4. The antitrust termination fees are different than fees for some other types of breakups.

In the Aetna-Humana deal, the regulatory termination fee is lower than the fee Humana would have had to pay if it had jilted Aetna to go with another suitor. If Humana had gone off with another acquirer, it might have had to pay Aetna a $1.314 billion termination fee.

Under some circumstances, such as a failure of Aetna shareholders to approve the deal, Aetna might have had to pay Humana $1.691 billion.

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The termination fee provisions require the recipients live up to their deal obligations. (Photo: Thinkstock)

5. The carriers that seem to be on the hook for paying the antitrust-related termination fees may be able to avoid doing so.

Both deal agreements include provisions stating that the acquiring company need not pay an antitrust-related termination fee if the acquisition targets has committed a willful breach of the agreement terms, including breach of requirements that they try to comply with deal regulatory requirements.

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Anthem-Cigna and Aetna-Humana breakup provisions, dissected

1. Anthem could end up having to pay Cigna $1.85 billion. Aetna could have to pay Humana $1 billion.

2. Aetna and Humana talked about termination fees sooner than Anthem and Cigna.

3. The termination fees were a major focus of deal negotiations.

4. The antitrust termination fees are different than fees for some other types of breakups.

5. The carriers that seem to be on the hook for paying the antitrust-related termination fees may be able to avoid doing so.

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Anthem-Cigna and Aetna-Humana breakup provisions, dissected

1. Anthem could end up having to pay Cigna $1.85 billion. Aetna could have to pay Humana $1 billion.

2. Aetna and Humana talked about termination fees sooner than Anthem and Cigna.

3. The termination fees were a major focus of deal negotiations.

4. The antitrust termination fees are different than fees for some other types of breakups.

5. The carriers that seem to be on the hook for paying the antitrust-related termination fees may be able to avoid doing so.

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