WellPoint Seeks to Reassure Investors
WellPoint Health Networks Inc. sought to reassure investors Tuesday that its proposed sale to Anthem Inc., which would create the nation’s largest health insurer, was strategically sound.
Regulators in three states that had approved the Anthem-WellPoint merger recently have raised new questions about the deal, in part because of a pledge by WellPoint’s Blue Cross of California subsidiary to invest $100 million in healthcare over 20 years for the state’s rural and underserved communities.
The Anthem-WellPoint merger has been delayed since July when California Insurance Commissioner John Garamendi blocked part of the deal on grounds that it would cost policyholders $4 billion. Georgia Insurance and Fire Safety Commissioner John Oxendine rescinded his approval of the Anthem deal the same day.
“It’s always been our understanding every state has a regulatory duty to ensure the deal they approved is the deal that gets done,” Leonard Schaeffer, chief executive of WellPoint, said Tuesday in a conference call with analysts. “We will continue to respond to regulatory agencies about any questions they may have about the merger.”
Anthem sued Garamendi in August to overturn his ruling. The pending Anthem trial and the possibility of more states rethinking their approval of the deal now puts the odds at less than 50% that the merger will be completed, SG Cowen & Co. analyst Edmund Kroll said in a note to clients Tuesday.
Schaeffer said the Anthem-WellPoint deal would not be terminated unless either company chose to walk away. Given the performance of both companies, Schaeffer said the deal “still is the most appropriate thing for either of us to do.”
Thousand Oaks-based WellPoint on Monday reported a 28% increase in its third-quarter profit. On Tuesday, the company raised its per-share earnings guidance for the year to $7.60 to $7.65 from a previous forecast of $7.55.
Separately, Indianapolis-based Anthem confirmed on Tuesday that the company had received a subpoena from Connecticut Atty. Gen. Richard Blumenthal seeking information about the company’s commissions and bonuses.
Anthem spokesman Jim Kappel said the company planned to comply with the request for information. He said Anthem was one of about 35 companies that had received subpoenas from Blumenthal.
WellPoint has not been contacted by regulators in connection with any bid-rigging investigation, Schaeffer said. An investigation of insurance industry practices lodged by New York Atty. Gen. Eliot Spitzer this month sent HMO stocks plunging last week.
Schaeffer said WellPoint affiliates had agreements with some brokers under which the brokers might receive a payment based on aggregate growth and retention of business. During 2003, payments under the agreements amounted to less than 2% of WellPoint’s selling expenses.
WellPoint’s shares rose $4.67, or 5.3%, to $92.90. Anthem rose $3.84, also up 5.3%, to $76.84. Both trade on the New York Stock Exchange.
