Judging by merger arbitrage spreads, the market seems rather unconvinced that either Aetna Inc.'s proposed acquisition of Humana Inc. or Anthem Inc.'s planned purchase of Cigna Corp. will go through.

These spreads are calculated as the percentage difference between the target's share price and the implied merger price. As the thinking goes, one could buy a share of the target and, when the deal closed, that holder would be entitled to the per-share amount offered by the acquirer. Therefore, a high spread would indicate that investors do not think the deal will close, whereas a lower spread would suggest stronger conviction in the deal completing.

While these spreads have come down since early November 2016, they are still high relative to other deals. For instance, when S&P Global Market Intelligence performed this analysis in the past on deals involving reinsurance underwriter targets, the spreads would often go negative, indicating that investors thought the deal would not only complete, but that the acquirer would raise its offer for the target.

The proposed combination of Aetna and Humana was recently dealt a blow when a federal judge ruled Jan. 23 that the deal would "substantially lessen" competition for Medicare Advantage products. S&P Global Market Intelligence had previously noted that Medicare might be a potential red flag for regulators, based on the Herfindahl-Hirschman Index. An HHI analysis of the Anthem and Cigna tie-up also revealed some areas where there might be antitrust concerns with regard to that deal.

Another factor that would not seem to bode well for the odds of the deals completing is how long the process has taken thus far. As of Jan. 23, it had been more than a year and a half since the announcements. By comparison, even large deals like ACE Ltd.'s acquisition of Chubb Corp., which resulted in Chubb Ltd., took less than a year to reach the finish line.

However, there have been some deals in the past decade that took as long or longer, and that eventually completed. For instance, Swiss Re Ltd. spent several years in its pursuit of New California Life Holdings Inc., the parent company of Aurora National Life Assurance Co., and eventually closed the deal.

The question in the case of the big managed care deals is whether the health insurers choose to continue the fight through the legal process, and can hit upon a convincing case that their mergers should not be blocked on anti-competitive grounds. The top executives at both Aetna and Humana have said they are considering "all available options" and still believe that putting their companies together would result in a "better overall experience" for customers. They have not, however, committed to appealing a court ruling that blocked the deal.

Anthem and Cigna are still awaiting a judge's decision in a similar lawsuit brought by the U.S. Justice Department attempting to stop their merger.

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