Federal Judge Brings Justice on CVS-Aetna Merger

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Judge Richard Leon turns out to be a backbone of the Antitrust Division of the Department of Justice.

First, the judge, sitting in the federal District Court of Columbia, rejected the Justice Department's attempt to block the merger of
AT & T

(T) and Time Warner, a vertical merger of two companies of different activities. It was a tough and unusually tough battle in which Justice Leon defended the traditional antitrust standards of consumer welfare in an increasingly fluid anti-trust climate. (Justice has also lost on appeal.)

Now, Judge Leon is back, ordering

a May audition in another large vertical merger, this time between CVS Health (CVS) and Aetna. In this case, he raises questions about a settlement between CVS and the Department of Justice.

The $ 69-billion CVS deal was completed in November – Aetna's results were partially incorporated into CVS's fourth quarter results – although the judge warned companies that it might reconsider the settlement. Such hearings are usually superficial, and Judge Leon's opinion that it could take a week and involving testimony is quite unprecedented.

After dipping Monday, CVS shares rose slightly at noon to settle at about $ 54.

The judge criticized the CVS regulation, which he said involved "less than one-tenth of 1%" of the merger, suggesting that it was an aesthetic fix. . The Ministry of Justice has reached an agreement involving the sale of Aetna's Medicare Part D activity, the so-called Medicare prescription drug plan, to
WellCare Health Plans

(WCG), which is being acquired by Centene (CNC) for $ 17.3 billion.

Thus, depending on how Leon JA manages the settlement, he could disrupt close to $ 80 billion in mergers or closures.

CVS agreed not to integrate the assets of Aetna in question prior to the hearing, but said nothing publicly.

As for Justice, there was a lot to be said at the hearing where Leon said they were going to call witnesses. Department of Justice attorney Jay Owen objected to this idea. It was not the first time Owen and the judge had crossed paths. At a hearing in November, Owen told Justice Leon that CVS had entered into the transaction (including the sale of Aetna's assets to WellCare). The judge complained that he had not heard: Owen This court is not a stamp.

The Department of Justice attempted to argue that the judge could only consider the remedy arising from the complaint originally filed by the agency, under a law known as the Tunney Act. Leon categorically rejected this view.

More importantly, the Department of Justice continues to muddle into vertical mergers. The antitrust division and its chief, Makan Delrahim, have never adequately explained why they went to war against AT & T and Time Warner, but approved the $ 67 billion merger Cigna (CI) and ExpressScripts and proposed a relatively mild cure to CVS and Aetna.

It is difficult at the moment to understand what worries Judge Leon – even though he made it clear that witnesses, including the American Medical Association, will testify, and that critics of the agreement have raised issues of higher prices, inferior quality and limited choice red flags antitrust – and he could finally accept the settlement. But if you rule out the possibility of an experienced judge trying to torture antitrust officials, we may be able to learn something new in this hearing and in Judge Leon's opinion.

And what if the judge tries to reopen the case?