Initial Reaction Is Positive To

Going forward, stronger results in the industry could encourage M&A activity, he continued, but any such activity would not be between Blues because of legal and regulatory requirements, but more likely among non-Blues.

The deal would create a stronger position for the combined company in the New York marketplace, said Stephen Zaharuk, an analyst with Moodys Investors Service, New York.

However, Zaharuk said, Oxford is very popular with smaller brokers and he wonders, if the reports prove true, whether that relationship would be hurt by its becoming part of a larger entity.

Oxfords other strength is in its brand name, he continued, adding that it would be a concern if Oxford lost "its uniqueness and culture."

UBS analyst William McKeever wrote that a combination would make sense due to economies of scale and synergies.

The transaction would make sense, McKeever wrote, because Oxford has "a strong presence in the small group market which would complement WC exposure to the large group."

Additionally, he wrote, WellChoice has the wherewithal to make an acquisition. The company, he wrote, generates $300 million annually in free cash flow and has $2 billion in cash on the balance sheet.

If the companies do join, he wrote that the new company "can take out 3-4% of the administrative costs of the combined company." The savings would be on combined sales, general and administrative expenses of $1.5 billion. The transaction "could be accretive by 5-6% for WellChoice in the first full year of the transaction, assuming the 25% premium discussed in the WSJ article."

In its 2003 10K filing, WellChoice said its strategy is to be "the leading health insurer in the New York marketplace and surrounding areas."

Oxford has 1.55 million members, 1.11 million of which reside in New York. WellChoice has 4.8 million members.

Reproduced from National Underwriter Edition, April 9, 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.