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Read Making a Killing

home / healthcare / in the media

The Los Angeles Times
Dec 01, 2004

by Lisa Girion, Times Staff Writer

Anthem, WellPoint Merger Is Complete;

Deal creates the biggest U.S. health insurer. One executive says members can expect more choices but not lower prices.
After several false starts and months of controversy, Anthem Inc. completed its acquisition of WellPoint Health Networks Inc. on Tuesday, creating the largest health insurer in the nation with more than 28 million members.

The company will operate out of Anthem's Indianapolis headquarters but will adopt a streamlined version of its Thousand Oaks-based target's name: WellPoint Inc.

The conclusion of the cash and stock deal, valued at about $21 billion, was announced after the market closed. But anticipation that the purchase -- more than a year in the making -- would be formally wrapped up drove the stocks of both companies to new highs.

Shares of WellPoint, the parent of Blue Cross of California, rose $2.08 to $125.10, while Anthem rose $1.73 to $101.33, both on the New York Stock Exchange. The combined company will begin trading today under the ticker symbol WLP.

Since the deal was announced in October 2003, Anthem's stock has risen 31%, while WellPoint's has soared 49%.

Analysts said they expected the bulked-up insurer to grab employee health benefit accounts at big corporations operating in multiple states.

The combined WellPoint covers more than a third more people than its next largest competitor, Minneapolis-based UnitedHealth Group Inc.

"With the merger, Anthem and WellPoint stepped up into the big leagues," said Steven Hill, a manager with First Investors, which holds Anthem shares.

Healthcare analysts said they did not expect California's 7.5 million Blue Cross members to notice changes in benefits anytime soon, and California Insurance Commissioner John Garamendi has obtained the right to review rate increases to ensure that premiums are not used to finance any part of the deal.

The combined company expects to realize $150 million in savings next year by merging certain operations. Annual savings could reach $250 million or more after that.

Still, healthcare experts cautioned, the benefits of the marriage to consumers may be limited. That's because healthcare costs reflect usage and prices that doctors and hospitals negotiate in individual markets.

Indeed, Anthem Chief Executive Larry Glasscock told reporters that consumers could expect more choices -- but not lower prices.

"What we will be able to do by virtue of the merger is slow the rate of increases in premiums," said Glasscock, who will be CEO of the new company. "We will obviously work through this consolidation to reduce or spread our cost over more members."

It wasn't immediately clear how staffing levels could be affected; Glasscock said those details were still being sorted out. WellPoint employs about 8,400 people in California.

Anthem and WellPoint followed a similar growth path, rising out of Blue Cross and Blue Shield plans in their home states and then gobbling up other Blues across the country. The combined company's footprint extends into 13 states.

"This merger is a great strategic and geographic fit," said WellPoint Chairman Leonard D. Schaeffer, who will retain that role at the combined firm.

Schaeffer is set to receive $47 million in so-called change-in-control payments. He also holds stock and options worth an additional $188 million, not all of which can be cashed out right away. He earned the stock and options over his 19-year career at the company.

In all, 293 WellPoint directors, officers and other executives are eligible to receive retention or severance bonuses that the company has estimated could total as much as $356 million, not including stock options.

Glasscock reiterated Tuesday that the final bonus tally was expected to be closer to $250 million, with the amount contingent on how many executives stay.

The scope of the bonuses, which came to light seven months after the proposed deal was announced, became a major point of contention and helped delay the close of the sale.

Garamendi, for one, said he was appalled by the size of the bonuses and atone point called the acquisition "one lousy deal for California healthcare consumers." He approved the transaction only after the companies agreed to invest at least $265 million in healthcare programs around the state.

Georgia's insurance commissioner followed suit. He gave his blessing to the deal Tuesday after winning $126.5 million in investment in rural telemedicine and other initiatives in his state from Anthem.

Despite those concessions, advocates for policyholders remained outraged Tuesday by the extent of the bonuses.

They are "a nine-figure Christmas gift for company executives at a time when patients have to fight for basic healthcare coverage," said Jerry Flanagan, a spokesman for the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

Healthcare giant

New company name: WellPoint
Headquarters: Indianapolis
Total members: 28 million
California members: 7.5 million
Purchase price: $21 billion

Biggest health plans
Ranked by number of members (in millions)


WellPoint: 28.0
United: 18.0
Aetna: 13.6
Cigna: 9.9

Source: Company reports


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