Vote is blow to CareFirst conversion

Senate panel action would forbid buyer's `break-up fee`

Bill goes to floor today

Measure also targets $33 million package for Blues executives

March 22, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

CareFirst Blue Cross BlueShield's chances of completing its proposed $1.3 billion acquisition by a California-based for-profit company appear to be dwindling as the result of a Senate committee's approval of a bill that could scuttle the transaction.

CareFirst general counsel John Picciotto said yesterday that the bill, which would forbid payment of a "break-up fee" to WellPoint Health Networks, could kill the deal. The legislation, sponsored by Sen. Robert R. Neall, an Anne Arundel County Democrat, and approved Tuesday by the Senate Finance Committee, is scheduled to go to the floor today.

The legislation also would forbid the $33 million compensation package planned for CareFirst executives if the transaction goes through. A bill with similar restrictions, sponsored by Del. Dan K. Morhaim, a Baltimore County Democrat, passed the House unanimously yesterday.

Neall's bill was one of a package of bills the Anne Arundel Democrat introduced in an effort to block CareFirst's conversion to for-profit status and sale without explicitly prohibiting the transaction, which is now the subject of hearings by Insurance Commissioner Steven B. Larsen.

The Finance Committee's action is significant because it has been regarded as the toughest hurdle for legislation opposed by CareFirst.

In a move that was widely expected, the Senate unanimously approved yesterday a bill that would put the burden of proving the transaction is in the public interest on CareFirst. Under current law it is up to the commissioner to show that the deal is not beneficial to Maryland.

The House earlier passed its version of the same bill, making final approval a formality.

The legislation was regarded as the minimum the General Assembly would do to make it more difficult to complete the politically unpopular deal. Even CareFirst executives conceded it was necessary.

"We have no problem with that at all," Picciotto said of the bill's passage.

More threatening to the sale, both houses have passed different bills that could prompt WellPoint to walk away from the deal.

Picciotto said the break-up fee provision in the Neall bill could make the process too risky for any buyer. "Without that protection, it's difficult to justify for a buyer the money they would spend on lawyers and bankers," he said.

Picciotto said the $37.5 million fee would be paid only if CareFirst accepted a higher bid from a rival company and WellPoint declined to match the offer. He said the fee would not be paid if the deal did not go through because of General Assembly action, the insurance commissioner's disapproval or a decision by CareFirst not to go through with the transaction.

Another potential deal-killer, Picciotto said, is a bill that would require the price for CareFirst to be paid in cash. The current agreement calls for WellPoint to pay $450 million in cash and $850 million in stock to health care foundations in Maryland, Delaware and the District of Columbia.

That bill, sponsored by Economic Matters Committee Chairman Michael E. Busch, an Anne Arundel Democrat, passed the House without dissent March 14.

Picciotto said CareFirst is not ready to throw in the towel on the sale. He said the company will lobby to block the Busch bill and defeat Neall's break-up fee bill.

The Finance Committee also approved another Neall bill that would require a special audit of all the public benefits CareFirst had received as a nonprofit over the past five years.

The committee defeated two other Neall bills that would have required CareFirst to stay in the Medicaid program and to offer affordable health insurance to high-risk customers through an open enrollment program as a condition of receiving certain tax breaks available to it as a nonprofit.

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