NU Online News Service, Oct. 27, 2003, 9:53 p.m. EST – Anthem Inc., Indianapolis, has announced plans to acquire WellPoint Health Networks Inc., Thousand Oaks, Calif., for $16.4 billion in cash and stock.
The deal would make the combined company the biggest managed care company in the United States, with 26 million medical members and annual revenue of about $27 billion.
WellPoint, which has a record of being especially friendly toward health insurance agents and brokers, has had to address investor and rating agency concerns about its dependence on the California health insurance market, and it and Anthem emphasize that the combined company would have “expanded geographical diversity.”
The deal is subject to approval by antitrust regulators, other regulators and shareholders. Anthem and WellPoint hope to complete the deal by mid-2004, but both companies have seen major acquisitions fall through in recent years.
If the companies succeed at completing the deal, the combined company would be called WellPoint Inc. and have its headquarters in Indianapolis.
WellPoint Chairman Leonard Schaeffer would be chairman, but Anthem Chairman Larry Glasscock would be the chief executive officer, and Anthem directors would get 12 of the 20 WellPoint Inc. board seats, according to Anthem and WellPoint.
Anthem generated more than $16 billion in revenue in 2002 from providing or administering medical coverage for 12 million people and other types of insurance for millions of other people. It has Blue Cross and Blue Shield licenses in nine states.
WellPoint reported $19 billion in 2002 revenue and medical membership of 14 million. It has the Blue Cross license for California and the Blue Cross and Blue Shield licenses for Georgia, Wisconsin and most of Missouri. WellPoint sells health insurance outside the Blue Cross/Blue Shield system under the HealthLink and UNICARE brand names.
The combined company would have 26 million medical plan members and the right to operate Blue Cross or Blue Shield companies in 13 states, according to Anthem and WellPoint.
Anthem and WellPoint predict the deal will lead to $50 million in expense savings in 2004 and $250 million in savings a year by 2006.
The companies emphasize that their regional units will keep their current brand names and their current regional management structures.
The combined company also will continue to use the UNICARE brand, the companies say.
Moody’s Investors Service, New York, says it is upgrading the rating of Anthem’s senior debt to Baa1 from Baa2 because of the company’s strong performance in recent years, but it notes that the WellPoint deal will lead Anthem to carry more goodwill and other intangible assets on its books.
Analysts at Standard & Poor’s Ratings Services, New York, issued a similar comment on the Anthem/WellPoint deal.
The S&P analysts say Anthem could run into problems merging its operations with those of WellPoint, and that goodwill and other intangibles will amount to more than 85% of equity after the deal closes.
“However, cash flow and earnings are expected to remain very strong, with [earnings before interest and taxes] projected at more than 10 times prospective interest coverage,” the S&P analysts write.