State Queries on WellPoint May Stall Deal

By Lisa Girion Times Staff Writer

Regulators in three states that have approved Anthem Inc.'s proposed purchase of Thousand Oaks-based WellPoint Health Networks Inc. are raising new questions about the deal, increasing the likelihood that it may unravel.

The Anthem-WellPoint deal has been in limbo since July when California Insurance Commissioner John Garamendi blocked part of it. Nine other states and Puerto Rico had already approved the acquisition that would create the nation's largest health insurer.

It is a hot political issue in California. The same day that Garamendi rejected it, the state Department of Managed Health Care cleared the way for Indianapolis-based Anthem to acquire WellPoint's large Blue Cross of California operation. The agency, which regulates HMOs, gave the go-ahead partly because Blue Cross pledged to invest $100 million in healthcare over 20 years for the state's rural and underserved communities.

That pledge for California is now causing other states to rethink their positions. In fact, Georgia Insurance Commissioner John Oxendine has rescinded his approval.

"We have basically informed [WellPoint] that they would be pretty much at square one if they come back to Georgia" to ask him to reconsider, Oxendine said Wednesday.

He said he notified WellPoint and its Blue Cross subsidiary in July of his decision.

Oxendine said the $100-million California deal sweetener created a slew of questions: "What effect is that going to have on the solvency of the company? Are they going to have to raise [insurance] rates to pay for it?"

In Missouri, the insurance regulators who approved the Anthem-WellPoint marriage are wondering whether the California pledge was the reason for a recent request by a WellPoint Missouri subsidiary to make a $10-million dividend payment to its California parent.

Randy McConnell, a spokesman for the Missouri Department of Insurance, said the state had earlier been told that a $367,000 ordinary dividend by HealthLink, the subsidiary, would cover its share of transaction costs for Anthem's purchase of WellPoint.

"Instead, what we have received is a request for an extraordinary dividend of $10 million, which has raised considerable questions about what is going on," McConnell said.

By state law, Missouri regulators must approve any dividend requests above certain levels, McConnell said. Missouri could reject the dividend payment, he added, depending on what regulators learn about what WellPoint plans for the money and its effect on Missouri.

"Things are still up in the air because we haven't had a chance to ask any questions," McConnell said.

WellPoint spokesman Barry Holt said the dividend request by WellPoint's Missouri subsidiary was part of the "usual course of operations" and "not related to the merger."

As for Georgia, Holt said WellPoint provided the insurance commissioner with information about the pledged $100-million California investment and wasn't aware of any concerns. "We've seen no change in support of the merger from Missouri or Georgia," Holt said.

Anthem had no comment.

Meanwhile, Danny Saenz, a Texas insurance deputy commissioner, said the state's approval of the Anthem-WellPoint deal was technically in "limbo" while they await resolution of a court fight between Anthem and Garamendi over his denial.

The first hearing in Anthem's suit against Garamendi is set for Feb. 25.

On Wednesday, Garamendi said he remained open to reconsidering his denial if the companies could prove how they would make good on Anthem Chief Executive Larry Glasscock's pledge that California policyholders wouldn't pay the $4 billion in transaction costs.

Garamendi said neither company had made any such overture. "This is going to cost policyholders $4 billion for no discernible benefit or a minor discernible benefit," he said. "That's why I said, 'No way.' "

Regulators in several other states that had approved the deal said their decisions were conditioned on the original terms and could be revisited if there were major changes.

The planned acquisition was announced almost a year ago. Controversy over estimates of windfall bonuses of up to $600 million to WellPoint executives sparked opposition in the spring.

Anthem's stock closed Wednesday at $76.23, up $2.53; WellPoint finished at $91.50, up $4.50. Both stocks trade on the New York Stock Exchange.

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