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WellPoint Announces Second Big Acquisition

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NU Online News Service, Nov. 21, 11:07 a.m. – WellPoint Health Networks Inc., Thousand Oaks, Calif., has announced plans to acquire CareFirst Inc., Owings Mills, Md., for $1.3 billion in cash and WellPoint stock.

CareFirst is a nonprofit holding company for the Blue Cross and Blue Shield plans in Delaware, Maryland and the District of Columbia. It provides major medical coverage for 3.1 million people.

The company generated $86 million in net income in 2000 on $3.6 billion in revenue.

The CareFirst announcement comes on the heels of the Oct. 18 announcement of WellPoint plans to acquire RightChoice Managed Care Inc., St. Louis, a for-profit plan, for $1.3 billion in cash and stock.

WellPoint, the for-profit parent company of Blue Cross of California and Blue Cross and Blue Shield of Georgia, sells health insurance on a national basis through a third subsidiary, UNICARE.

But some securities analysts have suggested it may rely too heavily on revenue from its home state, California.

The CareFirst deal “strengthens WellPoint’s presence in a core strategic market and further diversifies our business,” WellPoint Chairman Leonard Schaeffer says.

WellPoint now has only 82,000 members of its own in the Mid-Atlantic region.

William Jews, CareFirst president, says his organization agreed to the deal because WellPoint is a strong company that has demonstrated its ability to handle mergers and acquisitions successfully.

The deal should also give the combined company more ability to invest health care infrastructure than CareFirst would have had on its own, Jews says.

Officials in Delaware, Maryland and the District of Columbia say CareFirst is a charity that holds its assets in trust for the benefit of the public.

CareFirst recognizes that it must switch to a new, for-profit charter to complete the WellPoint deal, WellPoint says.

CareFirst will apply for a new charter, and compensate the people for loss of nonprofit assets by contributing the $1.3 billion deal proceeds to health care charities, WellPoint says.

The fact that CareFirst does business in the District of Columbia adds an unusual twist: the D.C. operating company, Group Hospitalization and Medical Services Inc., has a federal charter.

Congress must amend or repeal that charter before WellPoint can complete the acquisition, WellPoint says.

WellPoint hopes to complete the deal sometime in 2003, and pay for it with a combination of $450 million in cash and $850 million in stock. If the price of WellPoint stock falls below $70 per share for an extended period, WellPoint may use a five-year note to keep the total deal value at $1.3 billion.

CareFirst provides insurance for some major medical members and simply administers coverage for others.

The deal gives CareFirst a value of $419 per major medical member, and $839 per fully insured major medical member.

That compares with an average value of $460 per major medical member, and $2,400 per fully insured major medical member, for the RightChoice deal.

WellPoint says it plans to keep the headquarters of the CareFirst operations in Maryland, and fold it into a new Southeast Region.

Jews will run the region when the deal closes, WellPoint says.


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