WellPoint Ups Its Bid for CareFirst

WellPoint Health Networks Inc. on Tuesday boosted by $70 million its offer to acquire a Blue Cross health insurer on the East Coast, hoping to push along a deal that has been held up for more than a year by regulators’ concerns.

Thousand Oaks-based WellPoint, one of the nation’s largest for-profit managed-care companies, said it would pay $1.37 billion in cash for CareFirst Inc., a nonprofit organization with 3.2 million members in Maryland, Virginia, Delaware and Washington, D.C.

WellPoint’s new offer also rescinds executive compensation packages of up to $119.6 million for CareFirst’s management that had been widely criticized by Maryland regulators and consumer groups.

“It addresses the key elements the Maryland legislature wanted,” said analyst Scott Fidel of J.P. Morgan.

But analyst Eric Veiel of Deutsche Bank warned that the new offer was not sweetened by much, and that the deal still faces significant regulatory and legislative hurdles.

“It’s not enough to make everyone opposed to the deal go away,” Veiel said.

Maryland officials have been concerned that if WellPoint took over CareFirst -- a health insurer to many lower-income people -- medical coverage would become too expensive for them. Officials in three states and Washington, D.C., must approve any takeover of CareFirst.

In September, an investment banking report commissioned by Maryland regulators said that CareFirst was worth between $1.38 billion and $2.25 billion, a valuation that WellPoint executives consider excessive. “They will be getting the highest value for their company,” said WellPoint spokesman Ken Ferber of the latest offer for CareFirst.

If the deal goes through, WellPoint said it may raise up to $850 million to fund the purchase. WellPoint also will waive the termination fee if CareFirst gets a better offer within 60 days of signing the new agreement, WellPoint said.

Wall Street analysts said that the latest proposal indicates that WellPoint, with about 12.5 million enrollees, would not abandon its strategy to solidify its position as the nation’s largest provider of Blue Cross Blue Shield health plans.

CareFirst posted net income of $92.4 million from continuing operations on $6 billion in revenue in 2001.

Maryland’s insurance commissioner, Steven B. Larsen, who must approve any sale, said that it was premature to comment and that a hearing will be held at the end of the month.

Analysts have said that WellPoint may face a rival bid for CareFirst by Indiana-based Anthem Inc., a publicly traded company that provides health benefits to about 11 million members.

WellPoint shares closed Tuesday at $69.45, down 35 cents, on the New York Stock Exchange.