In its second major acquisition this year, WellPoint Health Networks said last week it will buy RightChoice Managed Care, the parent of Blue Cross and Blue Shield of Missouri, for about $1.3 billion in stock and cash.
The deal, expected to close in the first quarter of 2002 pending regulatory approval, will expand the reach of WellPoint, already in the top five managed-care companies nationwide, bringing its enrollment to 12.6 million people in all 50 states (See chart). St. Louis-based RightChoice has about 26% of health plan enrollees in Missouri, making it the state's largest health insurer. Earlier this year, Thousand Oaks, Calif.-based WellPoint acquired Cerulean Cos., the parent of Blue Cross and Blue Shield of Georgia, for about $700 million.
WellPoint sweetened the Missouri deal by offering a 46% premium for RightChoice stock and promising to create a new Midwest division that would be headquartered in St. Louis, keeping jobs in the state. Those benefits helped secure the approval of RightChoice's largest shareholder, the Missouri Foundation for Health, a not-for-profit that was created when the state's not-for-profit Blues plan was dissolved in November 2000.
WellPoint will pay $66 per share for RightChoice stock, which was trading at about $45 when the transaction was announced on Oct. 18. By the end of the day, its price soared nearly 38%, to $62.10. WellPoint's stock fell 5%, to $101.50 per share.
The foundation holds 11.1 million shares of RightChoice, for which it will be paid total consideration in cash and stock of $732.6 million. Just before the deal was announced, the foundation's shares were worth about $500 million.
The foundation's board chairwoman, Alberta Slavin, who appeared at a news conference with executives of WellPoint and RightChoice to announce the deal, called it "a good day." She said the foundation's board voted unanimously to support the deal.
"It's an additional $230 million that will eventually assist us in meeting our mission, which is to help the underserved and uninsured in 85 (Missouri) counties," Slavin said.
Under the terms of the transaction, shareholders could take up to 30% of their consideration in cash, which would add $220 million to the foundation's coffers. The foundation has about $150 million, Slavin said. The foundation's ability to raise cash is limited because it can sell stock only if RightChoice conducts an offering.
"We think it's an exciting opportunity for us to move forward more quickly," Slavin said. She said the foundation appointed an executive director Oct. 1 and hopes to start funding projects by the middle of 2002.
In a written statement, WellPoint Chairman and Chief Executive Officer Leonard Schaeffer said the acquisition would strengthen his company's presence in the key Midwest market and diversify its holdings. RightChoice also operates HealthLink, a business that provides medical networks, administrative services, workers' compensation and other services in seven states. RightChoice Chairman and CEO John O'Rourke will lead a new WellPoint Midwest division, which will include HealthLink, Blue Cross and Blue Shield of Missouri and WellPoint's nearly 1 million Midwest enrollees.
The transaction is subject to the approval of the Missouri Department of Insurance and the Missouri attorney general's office, as well as shareholders.
"We don't expect any opposition," said Deborah Wiethop, a RightChoice spokeswoman.
Provider groups said they were taking a wait-and-see approach.
The deal "should bring a high level of financial stability and perhaps a broader range of health plans to Missourians," said Mary Jenkins, spokeswoman for the 144-member Missouri Hospital Association. She said the association was pleased with the fact that St. Louis will become a regional headquarters for WellPoint. "We think it's an economic coup for St. Louis," she said.
Some physicians have complained about slow payments from RightChoice, which is not unusual for health plans in the state, said C.C. Swarens, executive vice president of the Missouri State Medical Association. But he said RightChoice has been working with the medical community by forming physician advisory committees. Swarens said he was told last week by a RightChoice official those efforts would continue under WellPoint.
"I don't know how WellPoint is perceived," Swarens said. "But we're looking forward to working with them."