WellPoint Health Networks, Thousand Oaks, Calif., and CareFirst, Owings Mills, Md., issued a joint news release saying they would take 60 days to reconsider the terms of their merger agreement, which has been controversial because of the price WellPoint would pay for CareFirst and compensation packages for CareFirst executives.
The proposed $1.3 billion sale would turn not-for-profit CareFirst into a for-profit unit of WellPoint. For months, consumer groups and state legislators have lambasted the deal, contending the purchase price was too low and CareFirst's executives would profit excessively from the transaction. Analysts say if the two key issues aren't resolved the deal could fall apart.
Earlier this month, a report commissioned by Maryland regulators concluded that CareFirst's fair value ranges from $1.38 billion to $2.25 billion because of the insurer's profitability and market dominance, among other factors.
The report, prepared by the investment firm Blackstone Group, also revealed that CareFirst's 10 top executives stand to collect $47.9 million in severance benefits if the company merges with WellPoint. The disclosure revived concerns that CareFirst executives are putting personal gain before the best interests of the company's 3.2 million members in Delaware, the District of Columbia, Maryland and parts of Virginia.
There already have been signs that WellPoint may be dragging its feet on the deal. Last month, the company withdrew its filing for approval of the deal. In the joint news release, WellPoint and CareFirst said they had asked Washington, D.C., and Maryland regulators to continue their reviews and said WellPoint intended to refile its application with Delaware.
Three months ago, the Fair Care Foundation, a Washington-based public interest group, petitioned officials in Maryland and Washington to investigate what it called "exorbitant and improper" executive compensation packages approved by CareFirst in the months leading up to the deal.
"We can find no example in the history of the world where the head of a charitable nonprofit took that kind of money from the public," Fair Care Chairman A. G. Newmyer III told Modern Healthcare in June.
Others have accused WellPoint of low-balling CareFirst, pointing to Anthem's recent acquisition of Trigon Healthcare, Richmond, Va., which carried a $4 billion price tag.
CareFirst, which has operated as a not-for-profit since 1937, contends the merger with WellPoint is necessary for it to remain competitive in an industry now dominated by stock-driven giants such as Aetna and Cigna Corp. For WellPoint, the addition of CareFirst would give it a dominant position in the competitive mid-Atlantic region.