Insurance giant WellPoint Health Networks last week was given the go-ahead to acquire the parent company of Blue Cross and Blue Shield of Georgia for $700 million in cash, ending a three-year-long struggle.
Georgia Insurance Commissioner John Oxendine signed an order approving WellPoint's acquisition of Cerulean Cos., the parent of a thriving Blues plan that was restructured as a for-profit in December 1995.
Earlier this month, Cerulean reported an 82% increase in income for the fourth quarter ended Dec. 31, compared with the 1999 quarter. For the year, net income climbed 74% to $57 million from $32.8 million in 1999.
With the acquisition, Thousand Oaks, Calif.-based WellPoint takes over Georgia's largest insurer, absorbing 1.8 million members and a provider panel of 15,400 physicians and 196 hospitals.
In a written statement, WellPoint officials said the two companies are "working to close the transaction as soon as possible, and expect to complete the merger within the next few days."
Once the deal is completed, checks of about $5,975 each will be distributed to more than 74,000 individuals who were policyholders when the Georgia Blues became a for-profit company. The deal also calls for the creation of a $123.7 million endowment for Healthcare Georgia, a foundation established by a group of Cerulean-funded charities (See related story, p. 64).
Blues executives and employees will receive $48 million in bonuses, including $6.6 million for Georgia Blues Chief Executive Officer Richard Shirk. Charlie Harman, the plan's vice president of public affairs, said Shirk has no plans to leave, and Harman defended the payouts, saying experts in corporate finance testified to Oxendine that "this type of long-term incentive program is well within appropriate standards."
The Medical Association of Georgia opposed the transaction, questioning WellPoint's bottom-line emphasis and arguing that doctors, not insurance companies, should make decisions regarding patient care. The powerful physicians' organization recently won a lawsuit forcing the Blues to disclose physician fees and its payment methodology.
But Bill Clark, the medical group's associate general counsel, sounded a conciliatory tone after Oxendine's decision. Clark said: "We appreciate the fact that the commissioner extracted from WellPoint, under oath, their pledge to make medical decisions based on clinical data. We look forward to developing a good working relationship."
The acquisition saga began in July 1998, when WellPoint, the corporate parent of Blue Cross of California, offered about $500 million for Cerulean. Two lawsuits and a rival bid delayed the transaction for three years.
Disgruntled consumer groups objecting to the for-profit conversion filed suit in 1997, alleging that the Blues plan illegally transferred about $400 million in public assets to private investors when it became a for-profit insurer without establishing a foundation. The lawsuit was settled in 1998 when the Georgia Blues agreed to create and fund a new not-for-profit foundation.
A second suit, filed in 1998, involved claims by about 74,000 policyholders that said they should receive shares of any future buyout. WellPoint settled the suit last November with an offer of $5 million. That group is not the same as the one that will benefit from the $5,975 checks.
WellPoint then encountered a rival bid for its intended partner-an offer last November of about $675 million in cash by Virginia-based Trigon Healthcare. Ultimately, WellPoint earned the nod when it matched Trigon's subsequent offer of $700 million.
During public hearings Feb. 12 and 13 on the acquisition, WellPoint CEO Leonard Schaeffer said jobs at Cerulean's corporate headquarters in Atlanta and an operations center in Columbus won't be "substantially" affected by the acquisition. Oxendine said that satisfied his desire to keep the company's operations in Georgia, even though WellPoint is based in Southern California.
"Throughout this process, I stated that I wanted shareholders and consumers to receive the greatest possible value from this proposed transaction," said Oxendine, who announced his decision about a month after the public hearings. "I believe approving this transaction will have a positive effect on all concerned."