Letter Fuels Rumors of Buyer Interest in Blue Cross Assets
A confidential letter from a state official to Blue Cross of California directors has fueled speculation that there may be a buyer interested in acquiring more than $2 billion in assets that Blue Cross has proposed turning over to a new charitable foundation.
The issue surfaced Tuesday when the San Francisco office of Consumers Union, a watchdog organization critical of the Blue Cross plan, released an Oct. 7 letter from Department of Corporations Commissioner Gary Mendoza to Blue Cross officials. Mendoza wrote in the letter that investment bankers had advised the agency that “it is entirely possible that there could be a strategic buyer who would be interested in acquiring all of (Blue Cross’) assets.”
Disclosure of the letter could further complicate a Blue Cross reorganization begun two years ago by calling attention to the company’s valuable health care assets and perhaps encouraging another firm to come forward with an offer to buy those assets. The release of the letter also signals Consumers Union’s willingness to badger Mendoza to ensure the Blue Cross plan does not shortchange the state and consumers.
Mendoza’s letter does not specify if a buyer has already come forward with an offer for the Blue Cross assets, nor does it identify any buyer.
Mendoza declined to clarify those issues in an interview. “It was never our intention that the letter be released to the media,” he said, “and it is not appropriate for us to comment on any matter that is subject to ongoing review.”
Officials of Woodland Hills-based Blue Cross declined to comment. A Consumers Union spokeswoman said the letter was “leaked” to the organization.
One health care executive speculated that potential buyers for Blue Cross assets could include large HMOs, such as Minneapolis-based United Healthcare; U.S. Healthcare of Blue Bell, Pa., or a large traditional insurer.
“The most attractive things about the Blue Cross assets is the intrinsic value of the Blue Cross name and the significant market presence by the company in California,” the executive said.
Blue Cross, a nonprofit health care organization, has been stung by criticism that it failed to adequately compensate the state when it spun off most of its health care operations in 1992 into a publicly held, for-profit subsidiary, WellPoint Health Systems.
As part of that transaction, Blue Cross retained an 80% stake in WellPoint, a managed-care company. Blue Cross’ 80 million shares have a market value of nearly $2.2 billion. WellPoint stock closed Tuesday at $27.25, up 12.5 cents, in New York Stock Exchange trading.
The Department of Corporations has said that Blue Cross is obligated to comply with a law that requires nonprofits that convert to for-profit status to compensate the state by an amount equal to the company’s value at the time of the conversion. Blue Cross has proposed that it fulfill that obligation by turning over nearly all of its assets to a new health care charity in California.
Consumers Union and some state legislators have questioned whether Blue Cross’ plan puts the highest possible value on the Blue Cross assets. They have suggested that Blue Cross might get more for those assets by putting them up for sale on the open market.
