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Insurers in U.S. Near $6.5 Billion Takeover

Posted on: Wednesday, 28 September 2005, 12:00 CDT

By Andrew Ross Sorkin and Milt Freudenheim

WellPoint, the giant U.S. health insurer, is near a deal to acquire WellChoice, the largest health insurer in New York State and the parent of Empire Blue Cross Blue Shield, for about $6.5 billion in cash and stock, according to executives close to the negotiations.

A deal, if completed, would give WellPoint, already the largest U.S. health insurer with 28 million members in the United States, an expanded foothold in the northeastern part of the country. More important, a deal in New York would put it in direct competition with Oxford Health Plans in New York, a unit of UnitedHealth Group, WellPoint's acquisitive rival.

There has long been speculation about a deal between WellPoint and WellChoice as a possible counter to UnitedHealth's $8.14 billion acquisition of PacifiCare Health Systems this summer. WellPoint itself is the product of a merger last year of the two largest Blue Cross and Blue Shield companies, WellPoint Health Networks and Anthem. Blue Cross and Blue Shield are among the biggest U.S. health insurance plans. Both PacifiCare and WellPoint have millions of members in California.

The five million members of Empire would see little change immediately if there is an acquisition of WellChoice. Health insurers have argued that by growing in size, they can increase their negotiating leverage with hospitals and doctors and deliver lower costs to consumers. The companies also say that by raising money from investors, they can finance the heavy costs of information technology.

But a few states, including Kansas and Maryland, have in recent years blocked takeovers of some nonprofit Blue Cross/Blue Shield plans, objecting to large rewards for executives and contending that health plan members would face higher costs after a merger.

Deal-making by health insurers has been fueled in part by the sharp gains in their stock prices. Stocks have risen on expectations that spending on health care will continue to rise rapidly as the baby boomer generation ages and demand surges for new treatments and advanced care.

The executives close to the negotiations warned on Monday that the talks between WellPoint and WellChoice were at a particularly delicate stage and could still collapse. The talks began about a month ago, when WellPoint approached WellChoice with an unsolicited offer of about $73 a share, and the negotiations have continued in fits and starts, the executives said.

Under the deal that was being discussed on Monday night, WellPoint would pay about $77 a share in cash and stock. That would represent a 9.1 percent premium to WellChoice's closing price of $70.60. Shares of WellChoice, which went public in November 2002 at $25 a share, have risen 32 percent so far this year. Shares of WellPoint, up nearly 31 percent this year, closed Monday at $75.09, up 35 cents

Representatives of WellPoint and WellChoice were not available reached for comment.

Analysts have long advocated a merger between WellPoint and WellChoice. Charles Boorady, an analyst with Citigroup, wrote a note to investors in June predicting such a marriage.

Source: International Herald Tribune

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