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 at one
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.