WellPoint Health Networks and its principal stockholder, Blue Cross of California, have agreed on a new WellPoint recapitalization plan.
The plan would allow Blue Cross to meet its public obligations in converting to for-profit status. At the same time, the plan boosts Woodland Hills-based WellPoint's goal of expanding outside of California because the company will take on the Blue Cross name and mark.
Like the proposal under WellPoint's failed merger with Health Systems International, the revised plan would create two foundations worth a combined $3 billion. The charitable organizations would receive more than
$1 billion in cash and $2 billion in equity in the new WellPoint.
When companies convert from not-for-profit to for-profit status, they are usually required to donate assets to a public-interest foundation.
Under the recapitalization plan, WellPoint stockholders would receive a cash dividend of $10 per share rather than $12 under the old plan. Under a two-for-three reverse stock split, each of their shares would become 0.667 of a share in the new company.
Blue Cross, which is WellPoint's largest stockholder, would receive more than $1 billion in cash, including $800 million from the cash dividend and up to $235 million from the sale of Blue Cross' commercial assets to WellPoint.
Blue Cross would transfer most of the cash to one of the new foundations. It would transfer the rest of the cash and 53.4 million shares-representing 80.4% of the outstanding equity of the new WellPoint-to the other.
WellPoint, which also would receive about 310,000 enrollees from Blue Cross, would need to take on some debt to finance the transaction.
"This recapitalization provides needed liquidity to our largest stockholder and, at the same time, preserves the strong financial position WellPoint needs to fuel continued growth," said Leonard D. Schaeffer, chairman and chief executive officer of WellPoint, in a written statement.
Following criticism by consumer groups on the proposed makeup of the foundation boards, Blue Cross has proposed only a minority of former Blue Cross directors for the foundation holding the cash. A majority of former Blue Cross directors would sit on the board of the foundation holding the stock, said Patrick Garner, Blue Cross senior vice president.
The plan must be approved by the state Department of Corporations and other regulators as well as by WellPoint stockholders other than Blue Cross.
Blue Cross said it expected the transaction to close in the second quarter of this year.