Investors Voice Concerns Over Delays in WellPoint-Anthem Merger
Investors are "[o]utraged" over California's delay in approving the merger of Thousand Oaks-based WellPoint Health Networks and Indianapolis-based Anthem, and they have accused lawmakers and regulators of "electioneering at the expense of shareholders," the Sacramento Bee reports (Rapaport, Sacramento Bee, 7/22). The proposed merger, announced last October, would combine the companies under the name WellPoint and establish a headquarters in Indianapolis. The combined company would have $27.1 billion in assets, 40,000 employees and 26 million members in 13 states (California Healthline, 7/12). The deal has been approved by 97% of shareholders, the U.S. Department of Justice and officials in 10 of 11 states where approval from state insurance regulators was needed (Sacramento Bee, 7/22). However, the Department of Managed Health Care and the Department of Insurance still must approve the proposed merger (California Healthline, 7/12).
According to the Bee, a "noisy chorus of politicians is calling for the deal to be blocked," including Insurance Commissioner John Garamendi (D) and Treasurer Phil Angelides (D), who are expected to run for higher state offices, and Sens. Deborah Ortiz (D-Sacramento) and Jackie Speier (D-San Mateo), who are expected to run for insurance commissioner in 2006 (Sacramento Bee, 7/22). Garamendi does not have the authority to block the merger, but he can deny Anthem's request to acquire the license of WellPoint subsidiary Blue Cross of California, which represents the largest part of WellPoint operations in the state (California Healthline, 7/12).
According to the Bee, much of the criticism of the deal centers on the compensation packages for WellPoint executives (Sacramento Bee, 7/22). The packages could amount to as much as $356 million in severance payments and $250 million in unvested stock options (California Healthline, 7/12). However, many investors are "upset that California politicians waited until May to raise major objections" because details of the proposed merger have been available since November, the Bee reports. James Hoffman, a stock analyst with New York-based P. Schoenfeld Asset Management, said that the late dispute over executive compensation has "needlessly delayed" the merger, adding that California regulators are staging a "political holdup that robs investors." Patrick Hojlo, an analyst with Credit Suisse First Boston, called the delay of the merger by California regulators an "extortion attempt." In addition, investors are "jittery" and "frustrat[ed]" by the delay because the final value of the merger is unclear until state regulators give their approval, the Bee reports.
According to the Bee, some investors are also "questioning [Gov. Arnold Schwarzenegger's (R)] commitment to buffing up the state's business climate." One unnamed stock analyst said that the governor "could have resolved this, and we wouldn't be seeing so much uncertainty about the merger and volatility in the stock prices." Vince Solitto, a spokesperson for Schwarzenegger, said, "California's regulatory review process was certainly well known to investors in these companies when they purchased shares, to executives when they contemplated the merger, and to shareholders when they approved the acquisition." However, Solitto added that "the governor recognizes that the state has a certain reputation and an environment that needs improvement" (Sacramento Bee, 7/22).
"While politicians, executives and regulators wrangle publicly over the financial provisions of the [Anthem-WellPoint] merger," the state's "loss of corporate headquarters" is emerging as a "powerful subcurrent," columnist Dan Walters writes in a Sacramento Bee opinion piece. According to Walters, the "real loss, at least potentially," resulting from the out-of-state migration of corporate headquarters "is in the vital area of civic leadership." Walters concludes, "At some point, we should ponder what it is about California that tends to drive out corporate headquarters" (Walters, Sacramento Bee, 7/18).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.