Month / April 2017

by Frank Maduri

Follow Up: Anthem Merger Bid For Cigna Is Scuttled

A federal appeals court upheld the earlier decision of a lower court regarding the proposed merger of two of the largest healthcare insurance providers: Anthem and Cigna. The court opinion cited concerns about cost impacts to the consumer and the lack of competition in the healthcare insurance marketplace as the main issues with the proposed deal.

The backlash against this proposed marriage of two of the top three largest insurance providers had reached a critical mass in recent days. The pressure came from a variety of interested parties within the healthcare industry as well as from consumer interest groups.

The situation is further complicated because Anthem and Cigna are currently in a lawsuit against one another regarding that “breakup fee” clause that I detailed in my earlier coverage of this proposed mega-deal. The clause entails that Anthem pays Cigna $1.85 billion if this merger was to be derailed and not come to fruition.

Cigna is suing Anthem demanding payment of the fee. Anthem is counter-suing trying to force Cigna to stay in the merger deal. The resistance from several states and the federal government caused Cigna to look for ways to exit the deal. This situation has grown ugly very quickly, and the legal team for Anthem seems undeterred by this ruling. They are insisting they are going to find a way to gain approval for this merger.

Anthem and their legal team can spin this any way they would like, and they have 1.8 billion reasons why they are looking to pursue this merger. The reality is that the proposal is all but scuttled. The appeals court decision today affirms that and should be viewed as an indication that this proposal should be abandoned.
The lawsuits are another whole matter that is entirely separate and could take several different routes throughout that convoluted process. The regulatory reviews from the different government agencies ultimately had concerns about pricing and the monopolistic impact that the merger would have on consumer choice.

The combined Anthem/Cigna also would have been a major player in the provision of healthcare insurance to the business community. The potential influence on pricing and the subsequent effect that would have on the employee/employer splits on cost sharing for company provided healthcare coverage was a huge issue for certain states as well as the U.S. Court of Appeals.

This development comes just a few months after the Aetna – Humana proposed merger also collapsed during the review process. These mergers are the direct result of the consolidation route to optimize efficiency and maintain profitability during healthcare market changes due to the Affordable Care Act.

It should be noted that the proposed new healthcare plan changes are not fully known at this time, so the exact impact on the market is also unclear. The relentless pursuit of greed by these corporations in the healthcare industry is at the center of this particular situation.

The future of the Anthem/ Cigna proposed merger from the judicial perspective is either a “challenge” ruling on this verdict, which means that they can re-appeal this decision from the federal court. The other option is to attempt to take the case to the U.S. Supreme Court and see if they are granted a writ of certiorari to move that proceeding forward.

Some industry analysts and media types feel that a writ of certiorari is unlikely in this situation. The component that makes a Supreme Court review possible is the money involved with two companies of this size and the high powered legal representation that is involved in this case. It should be interesting to see how Anthem plans to move forward because they have the most at stake with the breakup clause taken under consideration.

The merger, for all intents and purposes, is opposed by about a dozen states and the federal court system as well as the regulatory bodies involved. This creates conditions where it is unlikely that it moves forward. The court ruling today cited this decision under the framework that it is a victory for the consumer because of the potential impact on pricing the combined entity could have exerted.

In my view, from covering mergers, I am not a proponent of monopolies. I also have learned that the bigger the merger in size, the more combustible it is when it becomes unraveled. This proposal is setback significantly, but it is not over yet. Anthem will not go quietly into the night paying a fee to Cigna, and Cigna is going to want the money from Anthem based on the agreement they had in place. It is going to get ugly in the weeks ahead, but most likely these two companies will be going toe-to-toe and not on their way to a monopoly styled merger.

by Frank Maduri

Call Waiting: Verizon Back Peddles On Merger Rumors

The news out of Verizon on Thursday is that the comments made by their CEO, Lowell McAdam, were taken out of context regarding a potential merger involving the telecommunications giant.

The CFO of Verizon, Matthew Ellis, attempted on Thursday to clarify earlier remarks made by Mr. McAdam to the media. Those comments alluded to a potential merger of Verizon with Disney, Comcast, or CBS.

However, Mr. Ellis today offered a different explanation in stating that Mr. McAdam was answering a question about whether or not he would “take a call” from Disney, Comcast, or CBS. The comments are now being walked back by Verizon, today they clarified that they would be open to strategic partnerships with those entities and not an actual merger.

This clarifying statement from Verizon comes after several financial news sources ran with a story that Verizon was exploring a merger, and the stock prices of those three entities involved: Disney, Comcast, and CBS all saw increased trading activity.

It is no secret that Verizon is looking to grow certain aspects of their business, the acquisition recently of Yahoo is proof of that strategy. The senior management at Verizon have steered away from obtaining other large media companies, which is unlike their other competitors in this space. The deal between AT&T and DirecTV jumps to mind as the type of avenue to growth that Verizon has repeatedly avoided.

The earnings call with Mr. Ellis today described what Verizon calls “organic growth” of the company. The exact definition of that strategy is not completely defined, but like any other communications provider and internet service provider, Verizon is consistently looking for content. The old “content is king” mantra is still paramount in this industry space.

In an increasingly visual world, the demand for video content is at the core of what Verizon needs to fill within their own content pipeline. It is in this vein that a strategic partnership or some sort of partnership agreement with Disney, Comcast, or CBS would make sense for Verizon. Those entities have their own exclusive content or partnerships to provide content for other entities such as Major League Baseball, the National Football League, and the National Hockey League.

The demand for sports content is always robust and the demand for other types of entertainment in digital platforms is a demand curve that Verizon is going to be relentless in trying to meet over the next several months. The earnings call also came on Thursday amidst reports that the Verizon FIOS television service has lost over thirteen thousand subscribers in a short amount of time.

The streaming media services and the growth of other platforms to watch content is causing many Americans to “cut the cord” on cable, telco, and satellite TV services. The “on demand” culture and the binge watching patterns of the new ways that consumers expect has caused the drop off in the FIOS subscriptions.

This could create conditions where FIOS, AT&T/DirecTV, and Comcast are forced to reinvent themselves and provide more value to the consumer for the service. The advent of the DirecTV service that allows the viewer to watch at home or on a tablet or smart phone is a step into the future of the television trends to follow.

The question of whether or not Verizon is exploring a merger is a complicated one. It would make some degree of sense on one hand given the complexities facing the industry and the changing dynamics of digital content consumption.

Verizon is also prepared to face rather significant anti-trust regulatory reviews especially if they were to merge with Comcast, which would absolutely create a monopoly in the industry. That merger would have far-reaching implications for both private homes and small businesses as the internet is needed for doing really everything today from shopping, to watching movies, and to work related functions.

It remains to be seen whether Mr. McAdam was taken out of context, or whether there is more than meets the eye with this story. The ambitions of Verizon will come into focus in the near future. The company should, at the very least, consider some kind of partnership with another media company to fill the video content gaps that exist currently.

Verizon also knows that mergers or acquisitions are a complicated process and that ties up time and resources from being able to grow the company in other ways. In the end, only time will tell which direction they choose to grow their business in an increasingly competitive, evolving, and cost driven environment.

by Frank Maduri

United Airlines: An Exercise in Public Relations Futility

The disastrous handling of an overbooked flight on United Airlines has made national headlines and has devolved into a social media siege against everything having to do with the world’s third largest airline. United sold too many seats for a plane bound for Louisville, and they needed to get four crew members on that plane so that another flight departing from Louisville could proceed as scheduled.

The airline offered money ($800) to any passenger willing to leave on a later flight. The passengers were not motivated by that incentive, and one man, a doctor in Louisville who had patient appointments the next morning refused to leave the back of the plane.

The crew called in the police and the man was “re-accommodated” as United later termed it. The mainstream news reports from witnesses allege that the man was physically dragged from the plane and was seen with blood coming from his face. The reports state that several children aboard became very frightened. The situation is totally inexcusable, and the actions of the airline crew were totally out of line.

Then, United bumbled the whole public relations response to the situation and made a bad incident, worse for themselves. The airline tried to deny the incident, then tried to distort the facts by saying that the passenger “fell” when struggling with police and crew members. They finally, “came clean”, and issued an apology for their role in the incident.

United Airlines, became the source of all types of jokes and negative reactions on social media platforms such as Twitter and Facebook. The stock shares of the company have sunk in trading activity on Tuesday, as the public backlash continues and seems to be gaining strength.
There is a public petition signed by over fifty thousand people so far, the petition seeks to launch a federal investigation into what transpired on the Louisville bound plane. The prospect of a federal investigation is never a good thing for a publicly traded company, especially one with a public safety obligation such as a major airline.

United handled this situation and the aftermath of the situation just about as badly as a company could possibly have dealt with such a terrible scenario. The public image of their brand has definitely taken a setback and it is significant enough that it could damage their business outlook for the year.

The other seemingly obvious by product of this debacle is that a lawsuit for damages is most certainly forthcoming by the passenger involved. The financial settlement from the one legal action will not be enough to harm United Airlines, but the negative media coverage of an ongoing, protracted case will hurt their business from a brand image perspective.

The company has been destroyed on social media, with people from all sides taking shots at United and their terrible handling of the situation. In my days of media relations and communications work for companies, the first rule is to get out ahead of the situation before it becomes a story. The best policy is to be honest, admit mistakes were made, and move forward.

The general public, especially Americans, are “second chance” people and they are very willing to give a person or a company another opportunity if something goes wrong and the mistake was admitted. Conversely, they are far less likely to provide that same forgiveness or latitude if the perception is that someone is lying, or trying to cover up the real situation.

This is where United really compromised themselves, they should have just all come clean. They should have been honest, and the police involved are culpable too because that was an outrageous reaction to a situation with a passenger who had not violated any rules and was doing nothing wrong. The passenger was sitting in the spot he paid for, and was removed from the plane, that is huge problem for a consumer based transportation company.

The root of the issue is greed, which is why many people are so upset. In this case, the passengers stated that United could have provided more incentive for them to give up their seats for a later flight. United could have provided a complementary meal or two, or provided a hotel room for the night to lessen the inconvenience caused by the greed driven activity that got them into this mess in the first place: an overbooked plane.

United sold more tickets than they had seats available, which can be a somewhat common practice for airlines, so they are not left with a less than full capacity flight on that particular route. They underestimated the demand, and did little to try to help the passengers that had paid for seats. The four people they asked to move, also held the cheapest tickets on the plane, which many people have now taken issue with that part of the scenario.

United was moving these people to get their own employees on the flight, and in no way could they come out of this situation looking good. They should have issued an immediate apology for the actions taken on that flight and offered to compensate every passenger involved in some way. They did none of those things and are now in a media and social media barrage, and their corporate image is going to be damaged badly.

In the fast paced world of today with everyone having a forum on social media for their opinions, social media relations is a huge component of corporate branding strategy, and an area where United failed in this situation. Their response was not above board and their protocols and procedures for handling oversold planes must be evaluated.

In the end, United Airlines could have made alternative arrangements for getting those four crew members to Louisville. The airlines should reevaluate that component of this situation. The cost of the potential legal settlement coupled with the negative news and consumer perception backlash far exceeds the cost of the solution I had in mind. United should have chartered a private plane to get those employees to Louisville, in the end that would have been far more cost effective, and would not have involved a national media incident.

The United Airlines public relations response in this situation has become a case study: in what not to do when running one of the largest airlines in the world. United will now learn the hard way that honesty is the best policy, and greed never wins.

by Frank Maduri

European Union Votes To Ban GMO Crops

The majority of countries in the European Union voted to ban crops made with two different types of genetically modified maize on Monday. However, the measure failed passage because the countries that voted against the measure did not represent 65% of the population of the EU, a requirement to defeat this proposal from moving further in the legal process.

The crops in question as part of this measure were the Pioneer brand and another from Syngenta. The EU has been consistent in their resistance to genetically modified food and to crops utilizing genetically engineered seeds for both human and agriculture use such as to feed livestock.

The rules regarding these particular proposals seem to work against the union itself from a political and policy point of view because even if a majority of the countries vote against a specific policy, in this case being GMO seeds/crops, the motion can still carry if the more populated member countries vote in favor of it.

It would stand to reason that the citizens of the smaller or less populated countries would certainly have some frustration or anger over that voting mechanism within the structure of the E.U. at this point. The European mindset toward rejecting genetically engineered or modified food ingredients has been consistent over the course of the past several years, and they have been far more successful than the anti-GMO lobbying efforts have been in the United States.

Moreover, that is not meant to be an indictment on the anti-GMO movement in the U.S., because in my view, they have been tireless in their efforts toward further transparency in food product labeling and ingredient disclosure. The movement has even gained some victories in the past 18 months or so, in the declarations on the labels for food products from major manufacturers of nationally distributed brands.

The anti-GMO movement has been successful on the state level in gaining new legislative action regarding the use of genetically engineered products in a variety of applications from food production to agricultural use. The growth of new brands that are organic and non-GMO and their subsequent success in the marketplace is evidence of a growing trend in America away from processed and modified food to more natural and healthier food choices.

However, despite the policy victories and despite the change in the consciousness of the general American consumer, the new Administration in Washington threatens to rescind some of those legislative changes regarding the ingredients in food products. This includes the policy enacted by the previous Presidential Administration requiring food companies to disclose if the product contains any genetically engineered ingredients.

In my prior article about Campbell Soup Company and their decision to disclose those ingredients prior to the change which would make that disclosure mandatory, the stock market and shareholders alike had some trepidation on how it would affect sales at the company. The disclosure has resonated with the consumer especially in the case of their soup products, where there was some shock value to the presence of genetically engineered ingredients.

In the current context of GMOs in the food industry, there are some factions that feel that a rollback of the disclosure policy would damage the overall movement for the non-GMO interests. Then, there are others who maintain that the consumer now knows which companies and products contain GM ingredients, and will likely avoid them in their future purchase patterns. The other fact remains that once a purchase pattern is changed, most consumers do not revert back to a prior pattern for product selection.
In the context of the current situation in Europe, all of this comes within the backdrop of some major shifting and consolidation activity within the agricultural seed and crop protection industries. The largest players in those industry segments: Monsanto, Dow, DuPont, and Syngenta are all the subject of merger and acquisition activity at this point.

Monsanto is in the process of being potentially purchased by German corporate titan, Bayer. Dow and DuPont are in the process of merging together to form one goliath sized company and that merger just went before some E.U. regulators and is in regulatory review in the United States as well. DuPont is in the process of selling off some business units to FMC at this time to meet regulatory approval.

Syngenta is in the review process of being acquired by a Chinese corporation, which has left some within the Western economies feeling uneasy for a variety of reasons. The potential for the Chinese to gain access to specific technologies and processes that could impact the “playing field” in that industry segment is one issue. The concerns over quality control and product assurance/ product safety when it comes to the reputation of Chinese companies for bending the rules on certain protocols is an anxious proposition when it comes to the products used to grow food.

The European Union as a governing body must be facing pressure from an economic standpoint to start utilizing more genetically modified products from a cost efficiency point of view as well as a crop protection standpoint. The lobby from the corporations involved must be significant as well or else these types of proposals would not even be under consideration.

The EU currently uses GMO products but only certain types of products are approved for each type of main staple crop. The food produced from those crops is subject to very strict testing and regulations. The political movement by the union in recent years is to provide the member states with more latitude to determine how they will regulate GMO crops.

This current vote on EU crops represents the first new GMO crop products to be considered in almost twenty years. The measure, when or if it is passed, will only affect nine countries and some regions in Belgium and England. The other 19 members of the EU have banned GMO crops from being grown within their borders.

The future of genetically modified crops in the EU is going to be interesting especially given the backdrop of the major consolidation activity within the seed and agricultural/crop protection industries currently. Those companies will get even larger and more influential, and the resistance from the citizens and governments in the members states of the EU will have to ramp up their defenses to continue to resist the policies from being altered.