Trigon Healthcare's unsuccessful bid for Cerulean Cos. ended up costing WellPoint Health Networks an extra $200 million to acquire Cerulean, the Atlanta-based parent of Blue Cross and Blue Shield of Georgia.
The failed coup dealt Trigon, the Richmond, Va.-based parent of Trigon Blue Cross and Blue Shield, a setback in its plans to expand outside its Virginia marketplace through acquisitions in neighboring Southeastern states like Georgia.
Cerulean has been engaged to WellPoint, the Thousand Oaks, Calif.-based parent of Blue Cross of California, for more than two years.
In 1998, WellPoint agreed to acquire Cerulean for $500 million, but the deal's close has dragged on because of legal challenges to the Georgia Blues' conversion to for-profit status. The conversion was a prerequisite of the sale to WellPoint, which itself is a for-profit.
Cerulean settled the last of those lawsuits in early October, and its shareholders affirmed the 1998 merger agreement days later.
But in early November, Trigon made an unsolicited $675 million offer for Cerulean.
"We felt like there was a window of opportunity there to make an offer," said Trigon spokeswoman Brooke Taylor. "Our strategy is to become a leader in regional consolidation. When an opportunity arises, you have to take advantage of it."
Fitch, a New York-based credit-rating agency, placed $275 million of Trigon's debt on rating watch with negative implications after Cerulean publicly disclosed the offer last week. In its report, Fitch expressed concerns about how Trigon would finance such an acquisition.
After Cerulean's board called Trigon's offer superior to its 1998 agreement with WellPoint, WellPoint upped the ante to $680 million. Cerulean's board ultimately approved a revised agreement worth $700 million.
"We are now moving forward to close the merger transaction as soon as possible," Richard Shirk, Cerulean's president and chief executive officer, said in a written statement.
However, the deal still faces some potential hurdles. Georgia Insurance Commissioner John Oxendine must approve the WellPoint-Cerulean union. Last week, Oxendine postponed a Dec. 7 hearing on the deal, saying all parties needed more time to prepare.
Cerulean also plans to hold another meeting for stockholders so they can approve the new deal, Cerulean spokesman Charlie Harman said. The merger is expected to close sometime next year, he said.
Trigon Chairman and CEO Tom Snead said in a written statement that the company was disappointed by Cerulean's decision. He said the company will resume its previously announced stock repurchasing plans.
If Cerulean accepted Trigon's offer, it would have cost Trigon 25% of its year 2000 revenue, which is on track to reach $2.6 billion.
"At $700 million, the transaction would not fit our longstanding acquisition objectives, which include achieving (growth through efficiencies) by the sixth quarter after closing," Snead said.