NU Online News Service, Oct. 18, 11:05 a.m. – WellPoint Health Networks Inc., Thousand Oaks, Calif., has agreed to acquire RightChoice Managed Care Inc., St. Louis, through a merger.
WellPoint plans to pay for the deal by giving holders of RightChoice stock $404 million in cash, along with 0.6161 of a share of WellPoint stock for each share of RightChoice stock, the companies say.
The deal now has a total value of $1.3 billion, but the value could change if the value of WellPoint changes.
WellPoint is a large, national managed care company that holds the Blue Cross license for California and the Blue Cross and Blue Shield licenses for Georgia. It also sells major medical coverage nationwide through UNICARE. It has a total of 9.8 million major medical members.
RightCHOICE holds the Blue Cross and Blue Shield licenses for Missouri. It provides major medical insurance for 539,000 people in and around Missouri, and it administers health plans for employers and government agencies in Missouri and five other states. It helps cover 2.3 million people through the “administrative services only” contracts.
The RightCHOICE deal “strengthens our presence in a key strategic market and will significantly diversify our business,” WellPoint Chairman Leonard Schaeffer says in a statement accompanying the merger announcement.
Many managed care acquisitions announced in the past five years have involved target companies that were at death’s door, but RightCHOICE reported $28 million in net income for the first half on $570 million in revenue, up from $16 million in net income on $510 million in revenue for the first half of 2000.
The company generated $471 in revenue for each fully insured member, and $15 for each ASO member.
WellPoint likes RightCHOICE because it has good managers and a strong performance as well as a strong brand name, Shaeffer says.
WellPoint has offered RightCHOICE a price comparable to that offered to managed companies in the mid-1990s, when Wall Street viewed the managed care industry as a hot industry.
The deal has a value of about $480 per RightCHOICE member, and $2,400 per insured RightCHOICE member.
RightCHOICE recently completed the long, arduous process of converting to a for-profit stock charter, from a nonprofit charter, and fighting off the subsequent legal battles. The Missouri Foundation for Health now holds 11.1 million shares of RightCHOICE stock.
Completing the WellPoint deal at current share prices would give the foundation stock a value of $733 million, RightCHOICE says.
The deal would help the foundation get more value out of the stock more quickly than anybody had expected, according to RightCHOICE Chairman John O’Rourke.