Md. bill muddles sale of CareFirst

Assembly would require that any acquisition be an all-cash transaction

Proviso was called `deal-breaker'

April 09, 2002|By Michael Dresser and M. William Salganik | Michael Dresser and M. William Salganik,SUN STAFF

The General Assembly dealt a potentially significant blow yesterday to CareFirst BlueCross BlueShield's plan to be acquired by a California-based for-profit company, passing legislation invalidating a key provision of the sale agreement.

In its most explicit rejection of the deal struck by CareFirst last year with WellPoint Health Networks, the Assembly voted to require that any acquisition be an all-cash transaction.

CareFirst's contract calls for $850 million of the $1.3 billion purchase price to be paid in WellPoint stock. CareFirst executives had warned lawmakers that the provision was a "deal-breaker," but for many legislators that was all the more reason to support it.

CareFirst's general counsel, John Picciotto, said he did not know how WellPoint would react.

"Either they'll want to renegotiate or just walk away," he said.

A WellPoint spokesman said the company would have to review the legislation before deciding whether to proceed with efforts to buy CareFirst.

"This isn't the deal we made," said Ken Ferber, WellPoint's vice president for corporate communications. "We consider it a material change, and we'd have to evaluate it."

Ferber said he was not sure how long such an evaluation would take.

The pivotal vote came yesterday morning, when state Sen. Robert R. Neall offered an all-cash amendment to a broad CareFirst bill crafted by Senate Finance Committee Chairman Thomas L. Bromwell. Neall's amendment was identical to a provision in the CareFirst bill adopted by the House.

Senators voted 32-15 to adopt the amendment, overriding Bromwell's plea to leave the decision about the acceptability of stock to Insurance Commissioner Steven B. Larsen.

The tally represented a stunning defeat for Bromwell, who had attempted to hold the line against attacks on the deal despite the prevailing sentiment against the conversion of CareFirst to a for-profit company.

The Baltimore County Democrat urged colleagues to give financial experts a chance to examine the pros and cons of accepting stock.

But Neall, an Anne Arundel Democrat, said the claim that the provision is a deal-breaker is "baloney."

"If it is, it's because people didn't act in good faith," he said.

The Senate vote was a victory for both Neall, the leading Senate critic of the deal, and for Del. Michael E. Busch, who originally proposed the all-cash requirement in a House bill that was killed in Bromwell's committee.

Busch said he was happy with the final CareFirst bill, which follows a measure passed earlier that shifts the burden of proof that the deal is in the public interest to CareFirst.

"There are significant thresholds in raising the bar to protect the citizens of Maryland from the sale of what I believe is their nonprofit health insurer without adequate compensation and due process," the Annapolis Democrat said.

With the Neall amendment added, House leaders decided to accept the bill as the Senate passed it - forestalling the need for a conference committee. The measure now goes to Gov. Parris N. Glendening, who has expressed support for strong legislation.

"He has been talking with senators and delegates all session, saying he wants something strong to protect the investments Maryland taxpayers have made in CareFirst," said Glendening spokesman Michael Morrill.

In addition to the all-cash re- quirement, the legislation would:

Prevent the insurance commissioner from approving a deal that includes the payout of executive bonuses that are contingent on the closing of the transaction. This comes in reaction to the disclosure that top CareFirst executives stand to gain $33 million - $9 million for Chief Executive William L. Jews alone - if the deal goes through.

Leave to Larsen the decision whether a $37.5 million breakup fee in the WellPoint agreement is in the public interest. A separate bill prohibiting the payment - identified by CareFirst as another "deal-breaker" - never came up for a vote.

Guarantee the General Assembly a chance to reject the transaction next year if Larsen approves it.

Assert the insurance commissioner's authority to revoke CareFirst's certificate to operate in Maryland if the insurer attempts to thwart a denial of its Maryland conversion by moving assets to the District of Columbia and converting there.

Activists pleased

Health care activists praised the legislation.

"This is tremendous," said Vincent DeMarco, executive director of the Maryland Health Care Initiative. "We believe this deal is not in the best interest of the people of Maryland, and we want it [CareFirst] to stay a nonprofit. So, anything that makes it harder for CareFirst to become a for-profit is good."

CareFirst's Picciotto said the insurer's board would not see the vote as a repudiation of the company's decision to convert to for-profit status.

"The legislature had several chances to kill this deal outright and didn't do it," he said.

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