Officials Question AnthemWellPoint Merger

CalPERS owns only 721,840 shares of WellPoint stock and 612,938 shares of Anthem stock, but it says it is trying to persuade other shareowners to help it oppose the merger.

In addition to questioning the Anthem/WellPoint deal executive compensation provisions, Garamendi has worried about the possible effects of the deal on California consumers.

Anthem's plans for Blue Cross of California, WellPoint's main California operating company, are "not transparent," Garamendi testified at a hearing of the California Senate Insurance Committee, according to a written version of his remarks.

Anthem could shift the entire California market, which depends on heavily regulated health maintenance organizations, toward more lightly regulated preferred provider organization plans that offer inferior benefit packages and make consumers pay higher out-of-pocket costs, Garamendi said.

But David Colby, WellPoint?s chief financial officer, points out that Anthem, not WellPoint, will cover the cost of any deal-related bonuses and severance benefits.

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 says.

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 says.

In any case, the deal-related executive compensation is part of a fully disclosed executive compensation program that has been in place for years, Colby says.

Colby adds that the Anthem deal will help California residents by making WellPoint a stronger company that will be better equipped to improve its operations and negotiate for discounts from drug manufacturers and other providers.

Reproduced from National Underwriter Edition, June 18, 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.