Merger Report Drives WellPoint Stock Up 14% : HMO: Three companies, including at least one from California, review finances of Woodland Hills firm.

WellPoint Health Systems stock jumped 14% on a report that some rival managed care companies and the buyout firm Kohlberg, Kravis Roberts are eyeing the Woodland Hills-based firm.

KKR and two other companies have signed confidentiality agreements in exchange for access to review internal financial documents of WellPoint, the Wall Street Journal reported Wednesday, citing unidentified sources. The report said one of the other companies was either Foundation Health Corp. or FHP International Corp., two big California-based health maintenance organizations.

Officials of KKR, Foundation and FHP declined comment on the report.

A WellPoint spokesman also declined to comment.

WellPoint shares jumped $4 Wednesday to close at $32.625 in heavy trading on the New York Stock Exchange.

WellPoint was formed two years ago when nonprofit Blue Cross of California spun off most of its health care operations into a for-profit subsidiary. Blue Cross still holds an 80% stake in WellPoint, which provides health-care coverage to 2.8 million members.

If WellPoint were acquired, it would be the largest HMO merger yet in an industry that has been rapidly consolidating.

Some health plan executives said WellPoint’s heavy reliance on the California market--virtually all of its membership is in this state--makes it a troublesome acquisition candidate for any buyer.

“WellPoint is a California-only company, and this is a highly competitive marketplace where the (profit) margins are getting thinner and thinner,” said one executive familiar with WellPoint’s operations. “Would you want to spend lots of money to expand into the California managed care business when it’s the most mature (in the country) and so competitive?”

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Another executive said that any publicly held company acquiring nonprofit Blue Cross’ stake in WellPoint would have its earnings negatively impacted by accounting requirements pertaining to purchasing assets from a nonprofit organization.

Speculation about a possible suitor for WellPoint surfaced last November, after it was disclosed that California Department of Corporations Commissioner Gary Mendoza had sent a letter to WellPoint’s largest shareholder, Blue Cross of California, suggesting the possibility of a “strategic buyer” for WellPoint.

Mendoza’s letter was sent as part of the state agency’s review of a Blue Cross proposal to convert its 80% stake in WellPoint into a new charitable foundation. The Blue Cross proposal has been sharply criticized by consumer advocates and some state legislators, contending that Blue Cross has tried to side-step its responsibilities to the state and consumers when it spun off most of its health care assets two years ago into the for-profit WellPoint subsidiary.