CareFirst deal may deflect rival bids

One potential suitor notes breakup fee, right to match offers

January 05, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

Potential rivals to a California insurer's bid for CareFirst BlueCross BlueShield would be discouraged from making competing offers by the structure of the deal, an official for one of those potential rivals said yesterday at a public forum on issues involving the CareFirst deal.

CareFirst, Maryland's largest health insurer, is seeking approval to convert to for-profit status and be acquired by WellPoint Health Networks Inc. for $1.3 billion. Because CareFirst is a nonprofit, the purchase price would be paid to foundations or other public purposes in Maryland and the other states where CareFirst operates.

If another company, such as Virginia-based Trigon Blue Cross Blue Shield, were to offer more, the public foundations would get more. But Timothy P. Nolan, senior vice president for corporate development at Trigon, said a breakup fee of $37.5 million and WellPoint's right to see and match other bids meant that "it doesn't make sense for us to enter into a bidding process."

The daylong forum at the Baltimore Marriott Inner Harbor was sponsored by the Milbank Memorial Fund, a New York foundation that seeks to aid policy-makers, at the request of state legislative leaders. Sometimes it seemed like a legislative hearing, sometimes like an academic seminar, as legislators, CareFirst and WellPoint executives, state regulators and other "stakeholders" made comments and questioned each other.

Nolan said he attended to help describe how Trigon had gone through a similar conversion process, not to comment as a potential acquirer.

One participant, H. Furlong Baldwin, chairman of Mercantile Bankshares Corp., said full value from a CareFirst sale could be realized only with "a pure public auction, totally open" with "no side deals and no breakup fees."

Thomas C. Geiser, executive vice president and general counsel for WellPoint, said, "Anyone is entitled to increase the price, and the CareFirst board is entitled to terminate" the deal if it gets a better offer.

During an interview, he said a breakup fee and a right to match are "a proper and normal provision" of an acquisition deal. He said Trigon had bid on the Georgia Blue Cross plan, despite similar conditions on a deal between the Georgia Blues and WellPoint. (WellPoint ultimately outbid Trigon.)

John A. Picciotto, CareFirst's executive vice president and general counsel, said, "The process our board followed will be disclosed and discussed publicly" as part of the regulatory review of the deal, adding that CareFirst's board would have an obligation to consider any competing offers.

Beyond the best process for determining the value of CareFirst, the discussion ranged widely over issues such as the impact on CareFirst's 3.1 million subscribers, how WellPoint would view Maryland's regulatory system and how the state could assure that someone assumes CareFirst's historic role as "insurer of last resort."

Thomas L. Bromwell, who chairs the finance committee in the Maryland Senate, concluded the forum by saying he hopes that there will be a similar session again as the review of the CareFirst deal proceeds.

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