NU Online News Service, June 15, 2004, 7:06 p.m. EDT – Executives at WellPoint Health Networks Inc. say critics are confused about its proposed merger with Anthem Inc.[@@]

Anthem, Indianapolis, has announced plans to acquire the bigger, Thousand Oaks, Calif.-based managed care company in an effort to create a more efficient company that has the market share to be a major player in more states.

California Insurance Commissioner John Garamendi and officials at the California Public Employees’ Retirement System have questioned change-in-control provisions in the deal agreement that could generate more than $600 million in payments to WellPoint executives.

Garamendi and others also have worried about the possible effects of the deal on California consumers.

Now David Colby, WellPoint’s chief financial officer, has responded by sending a public letter to California Treasurer Philip Angelides that gives WellPoint’s side of the argument.

Colby argues that Anthem, not WellPoint or California health insurance customers, will fund any payouts to WellPoint executives as a result of the merger.

The change-in-control severance benefits and stay bonuses included in the WellPoint executive compensation program have been in place for years, and they have been fully disclosed, Colby adds.

Anthem expects to retain most WellPoint executives, and that probably will hold the actual change-in-control executive compensation costs to about $200 million, Colby writes.

Executives also could cash in up to $251 million in unvested options, but the executives have earned those options themselves over the years and have a legal right to exercise the options early if they are terminated, Colby writes.

Some of Colby’s other points:

- Since 1993, when WellPoint went public, the company has generated $20 billion shareholder returns and helped put about $7.1 billion in assets in charitable foundations.

- The Anthem deal will help make WellPoint more efficient and increase the financial strength of its main California operating unit, Blue Cross of California.

- The combined company will be in a better position to improve its computers and control pharmaceutical costs.