Garamendi To Make ‘Major Announcement’ on Anthem/WellPoint Merger

Insurance Commissioner John Garamendi (D) has said he will make a "major announcement" at a press conference Tuesday on a proposed merger between California-based WellPoint Health Networks and Indiana-based Anthem, the Sacramento Bee reports. Sources familiar with the negotiations expect Garamendi to announce that he will allow the merger to proceed (Rapaport, Sacramento Bee, 11/9).

The proposed merger, announced in October 2003, would combine the companies under the name WellPoint and establish headquarters in Indiana.

Garamendi in July rejected part of the proposed merger because he said Anthem would use as much as $400 million annually in health insurance premiums paid by California residents to finance the deal in the first three years and an unlimited amount after that time. The 10 other states with direct regulatory authority, the federal government and WellPoint and Anthem shareholders initially approved the proposal, but since then, regulators in Georgia, Missouri and Texas have raised new concerns about WellPoint's solvency (California Healthline, 10/26).

Garamendi will hold the press conference today in a medical clinic in Los Angeles. Anthem spokesperson Edward West said he would not comment on Garamendi's announcement until after it is made.

According to the Indianapolis Star, the "arbitrage 'spread' between WellPoint's stock price and Anthem's proposed acquisition price" on Tuesday morning decreased to $2.50 from $6 after news emerged about the announcement. According to the Star, such a decrease is "a strong indication that traders expect Garamendi to approve the deal" (Swiatek, Indianapolis Star, 11/9).

Anthem and WellPoint have been "knocking out impressive percentage gains in key financial measurements," leading many people to ask: "What's the reason for that takeover again?" Los Angeles Times columnist Michael Hiltzik writes in his "Golden State" column. Hiltzik adds that as "both enterprises are already 800-pound gorillas in health care, creating a 1,600-pound gorilla out of them doesn't produce much competitive clout or operational efficiency that they don't already have."

According to Hiltzik, expenses at both companies are down, shares of stock are up and member enrollment has risen "smartly." The "only benefit [both companies] ever quantified is the savings they'll gain from merging their computer systems, which they peg at a few hundred million dollars a year," Hiltzik adds. For that reason, some critics have said the merger is an attempt for WellPoint executives to "cash out" with compensation bonuses of up to $600 million, he writes.

Hiltzik concludes, "[N]either side seems to be promoting the deal with the same enthusiasm they had at the beginning," leading some to question whether company officials "haven't started to come around to their critics' view: For all its hassles, this deal isn't worth it" (Hiltzik, Los Angeles Times, 11/9).