Jews says deal price will stand

CareFirst differs from pricier Va. plan, he says

May 01, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

CareFirst BlueCross BlueShield doesn't intend to go back to its investment bankers to see whether the $1.3 billion price offered last year for the company still reflects fair market value, William L. Jews, CareFirst's chief executive officer, told state insurance regulators yesterday.

"It's not our responsibility," Jews said in an interview after testifying at a hearing conducted by Insurance Commissioner Steven B. Larsen. "We have a transaction on the table. To change would be improper."

Larsen had questioned Jews and other witnesses about whether the $1.3 billion price was still right, given a deal announced Wednesday in which Trigon Healthcare Inc. will be sold for $3.8 billion in cash and stock. Trigon, a Blue Cross plan based in Richmond and serving most of Virginia, is smaller than CareFirst but more profitable.

Trigon's deal with Anthem Inc., an Indiana company that operates Blue Cross plans in eight states, is causing some to question whether CareFirst got a fair price from WellPoint Health Networks Inc. The CareFirst price is important to regulators because the money will be paid to health-related foundations in Maryland, Delaware and the District of Columbia, where CareFirst operates. Yesterday, Jews described the funding of the foundations as one of the key elements that make the CareFirst sale in the public interest.

Yesterday's hearing in Baltimore ended the first phase of Larsen's review of the deal, which included five days of testimony by CareFirst and Well- Point witnesses in support of the deal. Larsen said he expects to hire, within the next few weeks, outside experts to study aspects of the transaction - including the price. The experts will report by late summer, and another round of hearings will be held after that, Larsen said.

Eventually, Larsen will rule on whether the deal is in the public interest. If he approves the transaction, he can also impose conditions CareFirst and WellPoint would have to meet if they want to complete the deal. Delaware and D.C. regulators will conduct similar reviews.

David Funk, a lawyer representing CareFirst and WellPoint, told Larsen at the end of testimony that the companies had met the burden of proof, showing that CareFirst's board did its job thoroughly in considering the sale, that the combined company would be able to serve members better, and the grants to the foundation would be "a huge, huge benefit to the state of Maryland."

At a public comment session at the hearing's end, one insurance agent supported the deal, and about a dozen representatives of labor, religious and senior groups opposed it, in general objecting to shifting CareFirst from nonprofit to for-profit and having it controlled by a California company.

For most of the daylong session, however, Larsen continued his questioning of Jews and other CareFirst officials on the company's business plans and on the impact of Anthem's agreement to buy Trigon.

Jews testified that while the public might view the two companies as similar, "Trigon is dramatically different from CareFirst" on a number of measures, such as profitability, earnings potential and reserves, that could lead to a different valuation. He said of CareFirst's price, "I think we did our diligence. The price was within the range set by independent experts, and represents fair market value."

If CareFirst decided to walk away from the deal, Funk told Larsen, it would have to pay WellPoint up to $3 million in costs incurred.

Under questioning from Larsen about Trigon's sale, Joseph V. Marabito, a partner in the consulting firm Accenture Ltd. who has been advising CareFirst on business strategy, said, "You can't ignore the price. The industry will be studying for some time whether that raises the bar. You have to be careful taking the number on the surface."

Also, Marabito said, the Trigon deal "puts a more formidable competitor in CareFirst's back yard." It did show, he said, "further evidence of the value in scale" in the health insurance business. His reports to CareFirst had suggested it would be better able to compete as part of a larger company.

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