Health Giants Trade Gibes on Proposed Deal : Merger: WellPoint strikes back by accusing Health Systems of trying to scuttle the agreement.
The proposed marriage of two of the nation’s biggest managed health-care companies, WellPoint Health Networks and Health Systems International, appears to be dissolving into a messy divorce.
After a volley of public charges by Health Systems that WellPoint had reneged on the merger deal, WellPoint struck back Thursday by accusing Health Systems of trying to scuttle the plan.
The issue of which company would be to blame if the $1.6-billion deal falls through is an important one. If it collapses, as now seems all but inevitable, it will likely prompt a rash of lawsuits from shareholders and other parties.
What’s more, the agreement announced by the two Woodland Hills-based companies in March requires whichever company backs out to pay the other a $50-million break-up fee.
The merger would create a national powerhouse in managed care that would have acquired Blue Cross and Blue Shield association health plans across the country.
WellPoint, which operates the CaliforniaCare health maintenance organization, is the for-profit subsidiary of Blue Cross of California. Health Systems is the parent of the Health Net HMO. Their merged company would be called Unicare.
In a 15-page letter to Health Systems, WellPoint contends that its intended partner “repudiated and materially breached” the merger agreement “by pursuing a course of conduct calculated to coerce WellPoint and [Blue Cross] into renegotiating terms” of the deal.
WellPoint contends that Health Systems had demanded changes in the agreement intended to enhance the role of its chairman, Malik M. Hasan, with the new company.
Dr. Hasan and WellPoint Chairman Leonard D. Schaeffer have been at odds over which of them would oversee future mergers.
Hasan said in an interview that Schaeffer had promised him responsibility for deal-making, but then “flip-flopped” by saying WellPoint would be in charge of seeking out mergers with other Blue Cross and Blue Shield plans.
But Pat Garner, a senior vice president with Blue Cross, said the agreement does not give Hasan exclusive responsibility for mergers.
In its letter Thursday, WellPoint charged that Health Systems’ “demand” to renegotiate the March agreement was proven by a letter it sent last week to Department of Corporations Commissioner Gary Mendoza. WellPoint claims Health Systems asked Mendoza to modify his order approving the merger, a request that would have required renegotiation of the deal.
“That’s the smoking gun,” said WellPoint spokesman John Cygul.
Hasan called WellPoint’s accusation “ridiculous.”
A Health Systems spokesman said it still wants to resolve the dispute but that WellPoint and Blue Cross have refused to meet. Garner said Blue Cross is willing to meet with Health Systems and that he expects a meeting will take place soon.
