CareFirst chief accuses Trigon over testimony

Larsen reportedly was told $1.3 billion wasn't final offer

Other promises related

Jews suspects an effort to throw `monkey wrench' into sale to WellPoint

August 24, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

Potentially damaging testimony by executives of Trigon Healthcare Inc. may be an effort to "throw a monkey wrench" into CareFirst BlueCross BlueShield's deal to be sold to a competitor, William L. Jews, CareFirst's chief executive officer, said yesterday.

CareFirst, the area's largest insurer, is seeking approval from regulators to convert to a for-profit operation and be acquired. Trigon bid $1.3 billion for CareFirst, but CareFirst's board elected to accept a matching offer from WellPoint Health Networks Inc. of California.

On Monday, according to sources, two executives of Trigon told Maryland Insurance Commissioner Steven B. Larsen in private testimony that Trigon would have paid more but was not pressed for a higher bid. They also said Trigon offered a written guarantee to maintain employment levels in Maryland and had promised that its CEO would buy a house in the Baltimore area and work here two days a week.

They also asserted that Trigon challenged CareFirst's plan to pay $33.2 million in bonuses to its executives, including Jews, for completing the deal.

The sworn testimony, delivered in a setting similar to a deposition in a court case, is potentially important as Larsen considers whether CareFirst negotiated the best deal it could. Experts say the process used in negotiating is a key factor in judging whether a price is fair. And if Larsen concludes that the $1.3 billion deal is not fair, he can reject it. He can also direct a higher price, and WellPoint would be free to pay or walk away.

Jews said yesterday, "I was appalled by the representations made by Trigon. They are fraught with inaccuracies." He said CareFirst would appear before Larsen to give its version of events.

Jews suggested the motivation could stem from Trigon's recent acquisition by Anthem Inc. Based in Indianapolis, Anthem, like the California-based WellPoint, is seeking to acquire more Blue Cross plans.

"It's possible the company wants to throw a monkey wrench into the process," Jews said. "I just raise the question. I'm not suggesting anything. We're trying to consummate a transaction. The timing is very curious. Who would be interested in CareFirst? WellPoint and Anthem."

Beth Laws, a spokeswoman for Richmond-based Trigon, said the company would reiterate a statement it made earlier in the week when asked about the testimony. That statement noted that the Trigon executives "were requested to appear before the Maryland Insurance Administration pursuant to a subpoena. They complied fully."

Lauren Green-Caldwell, a spokeswoman for Anthem, Trigon's parent, said only, "We stand behind the testimony of our executives."

WellPoint declined to comment.

Anthem operates Blues plans in nine states and has 10.5 million members, with the addition of Trigon last month. WellPoint is larger, with 13 million members, and operates Blues plans in California, Georgia and Missouri.

"Of the publicly traded Blues, those are the two acquisitive ones," said Eric L. Veiel, a managed-care analyst for Deutsche Bank Securities in Baltimore. "To call them rivals is not perfectly accurate, since all of the Blues have a sense of, for lack of a better word, brotherhood. But when it comes to acquisitions, they will be bidding against each other."

Trigon, before it was bought by Anthem, got into a public bidding war with WellPoint once before. WellPoint signed a deal in 1998 to buy the Georgia Blues for $500 million. As the regulatory review dragged out, Trigon jumped in during 2000 with a $675 million bid. WellPoint wound up making the deal, but with a $700 million price tag.

Jews questioned Trigon claims, made in testimony to Larsen, that it hadn't offered more money for CareFirst because CareFirst's investment bankers hadn't asked. "That's the inexperience of a company that has never done a major acquisition," he said. "If they're interested in making the acquisition, they need to lead the process."

Commenting on other aspects of Trigon's offer for CareFirst, he said that although Trigon said it wouldn't reduce staffing in Maryland, "I did not believe it."

Combining two companies in the same region, he said, "they would look for synergies, for economies of scale," that would lead to layoffs. He conceded that CareFirst itself had combined Blue Cross plans in Maryland, the District of Columbia and Delaware without job reductions in any of the three. However, he said, the deals were not comparable because of differences in market share and administrative costs.

He said Trigon's proposed post-merger management structure was "as bizarre as anything I've ever seen." Jews would have been chairman of the board and would have headed operations in CareFirst's territory, while Thomas G. Snead Jr. would have remained as CEO of Trigon and led operations in Virginia. Jews said this was unworkable and would have meant "an inability to be successful."

And, he said, Trigon initially promised to move its headquarters to Maryland, which he reported to Maryland officials, "then, they took that off the table."

In the end, he said, CareFirst rejected Trigon's bid because "we refused to play Russian roulette with our [employees] and with the good reputation this company has built."

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