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Anthem Will Take Garamendi To Court

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Anthem Inc. will go to court in an attempt to stop California Insurance Commissioner John Garamendi from blocking its $16.4 billion merger with WellPoint.

Anthem CEO Larry Glasscock told Wall Street analysts during a conference call last week of his plans to file a lawsuit to block the commissioners action. That caused some surprise, as there was speculation the two companies would spin off the estimated 4% of the combined company that fell under Garamendis authority.

But Glasscock said all efforts remained focused “on completing the deal in its entirety.”

Last October, officials of the two giant Blues consolidatorsIndianapolis-based Anthem Inc. and Los Angeles area-based WellPoint Health Networksannounced plans to merge. Garamendis approval remained the final regulatory hurdle.

Standard & Poors analyst Shellie Stoddard called Garamendis move a “considerable roadblock,” but noted that this was not the first time managed care mergers have been blocked by concerns raised by the commissioner.

“It is a big current issue and popular topic, and will continue to be,” she said. “The health insurance industry does not seem to be allowed to make as strong margins as other industries just by the very nature of its product. And that holds true for its executives.”

In a news conference last week, Garamendi called the merger proposal “an extraordinarily good deal for officers and directors, but this is one lousy deal for policyholders and health care consumers in California.”

Garamendis status as one of the nations most political insurance commissioners, having run for governor in the past and dangled toes in the race last October, did not go unnoticed by the Anthem-WellPoint management.

“We find it unbelievable that an elected official who claims to protect consumer interests would put his own political ambitions over the welfare of the people he is sworn to serve,” said David Colby, WellPoints chief financial officer. “To reject $465 million of benefits cannot be of help to any California consumer. Commissioner Garamendis decision puts at great risk the positive efforts that have begun to demonstrate that California can be a great place to do business and to invest.”

Analysts also noted that Garamendis refusal to approve the sale of BC Life and Health Insurance from WellPoint to the new combined entity came on the same day that Cindy Ehnes, director of the Department of Managed Care, approved the transfer of Blue Cross of California.

GOP Gov. Arnold Schwarzenegger appointed Ehnes, while Garamendi serves in an elected post.

Glasscock said all options remain under review, including the carve-out of the BC Life and Health component.

Management had expected to close the deal in the fall, but that remains uncertain now.

Reproduced from National Underwriter Edition, July 29, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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