CareFirst deal to be changed to all-cash

WellPoint is acceding to Maryland requirement

January 04, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

WellPoint Health Networks Inc. said yesterday that it plans to amend its application to buy CareFirst BlueCross BlueShield, making the purchase price all cash rather than cash and stock.

Owings Mills-based CareFirst's sales agreement with the California insurer, signed in November 2001, calls for WellPoint to pay $850 million in company stock and $450 million in cash.

The Maryland General Assembly, however, voted in 2002 to require an all-cash deal.

David C. Colby, WellPoint's chief financial officer, told a conference call of analysts and investors yesterday, "We ... hope to shortly file an amended merger agreement that will address certain concerns expressed to date, such as the all-cash nature of the purchase price, which is required by Maryland law now."

Colby did not provide other details in the conference call about changes in the proposed deal.

Ken Ferber, a WellPoint spokesman, said after the call that no decision had been reached about whether to amend the plan to deal with issues other than the all-cash deal, but reiterated, "We intend to comply with Maryland law."

At hearings last month, Insurance Commissioner Steven B. Larsen hinted strongly that he would turn down the deal unless CareFirst drops or changes a plan to pay its executives $119.7 million in deal-related bonuses, severance pay and tax benefits.

A consultant to Larsen said the payments are illegal under Maryland law.

But Daniel J. Altobello, chairman of CareFirst's board, told Larsen at the hearing, "The board does not intend to take up that issue until you have made your ruling about what is approved and what is disapproved."

A spokesman said CareFirst had no comment on WellPoint's discussion of amending the application.

Larsen announced this week more hearings for the end of this month, and said CareFirst and WellPoint would have to submit any amendments to their deal by Jan. 17 in order for them to be considered in time for the hearings.

"We hope and expect to meet the commissioner's deadline," Ferber said yesterday.

Larsen is expected to rule in February on whether the deal is in the public interest.

If Larsen were to approve the deal with conditions, or reject it while listing reasons, CareFirst and WellPoint could submit a revised application to meet his objections.

The deal is also subject to review by the Maryland legislature and by regulators in Delaware and the District of Columbia, where CareFirst also operates.

Colby said during the conference call yesterday that, with those jurisdictions likely to hold hearings by summer, it "could make it possible for us to close this transaction either in late 2003 or early 2004, although there is, again, still a great deal of uncertainty regarding exactly how this process will play out."

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