December 1, 2004
Anthem, WellPoint Complete $16.5B Merger
INDIANAPOLIS - Anthem Inc. and WellPoint Health Networks Inc. completed their $16.5 billion merger Tuesday, overcoming insurance regulators' misgivings to create the nation's largest health insurance company.
The new company, calling itself Wellpoint Inc. and based in Anthem's hometown of Indianapolis, will cover approximately 28 million people in 13 states, about a quarter of whom live in California.Larry Glasscock, Wellpoint's new chief executive, told reporters at a news conference in Indianapolis the companies had closed the deal just hours after winning approval from Georgia, the last state to sign off on the merger.
Georgia's insurance commissioner withheld his approval until the companies pledged $126.5 million to improve rural health care in that state. WellPoint Health Networks Inc. owned Blue Cross Blue Shield of Georgia.
California's insurance commissioner also had rejected the agreement until the companies in early November raised to a total of $265 million their pledge to boost health care in that state.
No other states have sought such concessions, Glasscock said.
He said the new company would use its resources to help fight rising health costs, however, and "to reduce the disparities in health care" in other states served by its Blue Cross subsidiaries.
"I think the tremendous opportunity we have to help transform our industry is to really serve the underserved and uninsured," Glasscock said. "I believe it's going to be a very important part of our future."
He stopped short of saying that customers might see reduced premiums, but did say he believed the new company had the financial resources to slow the rate of increases.
Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights in Los Angeles said the millions of dollars to improve health care in two states was "chump change" compared with executive payouts that were part of the deal and the premium increases customers could face to cover the merger's financing costs.
Under the terms of the merger, stockholders of Thousand Oaks, Calif.-based WellPoint Health Networks will receive $23.80 in cash and one share of Anthem common stock for each WellPoint share.
Anthem, the corporate parent, renamed itself WellPoint Inc. and will begin trading under the WLP symbol on Wednesday.
The new company has Blue Cross operations in 13 states and non-Blue branded operations in other states.
It employs more than 38,000 people, but that number is expected to drop as the combined companies reduce redundant positions. They said the merger will save $150 million next year and at least $250 million annually afterward.
"This merger is a great strategic and geographic fit," Leonard D. Schaeffer, chairman of the WellPoint Inc. board of directors, said in a prepared statement. "It will benefit our members and bring together unmatched resources to drive innovation in health care."
The new company said it expects its fourth quarter 2004 earnings, which will include only one month of earnings from WellPoint Health Networks Inc., to be about $1 per share. It forecast 2005 profits at $7.65 to $7.75 per share.
The merger was announced after the end of the trading day on the New York Stock Exchange. Anthem's closed up $1.73 to $101.33 per share. WellPoint closed up $2.08 to $125.10.