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WellPoint Is Hopeful About Bid for Cobalt

The medical insurer, coming off a regulatory rejection of an unrelated buyout offer in April, is optimistic as it looks to expand nationwide.

June 05, 2003|Debora Vrana | Times Staff Writer

WellPoint Health Networks Inc. expressed confidence Wednesday that the giant medical insurer's $906-million bid to buy a Wisconsin rival would be approved despite a failed bid to buy an East Coast insurer in April.

As part of its nationwide expansion plan, Thousand Oaks-based WellPoint announced late Tuesday that it would make a major move into the Midwest with an offer to buy Milwaukee-based Cobalt Corp., with 800,000 members.

"We are very enthusiastic about this opportunity.... We don't anticipate any opposition. It's a very clean deal," said Leonard D. Schaeffer, WellPoint's chairman and chief executive. "This is the heart of the Midwest. This is where we want to be."

WellPoint, the parent of Blue Cross of California, has 13.5 million members. The company has expanded in recent years into Missouri, Georgia and other states as it competes with Indianapolis-based Anthem Inc. to buy regional Blue Cross and Blue Shield plans nationwide. Most plans, however, are nonprofits and difficult to buy.

That is partly why WellPoint's expansion strategy recently stumbled.

In April, Maryland regulators rejected WellPoint's $1.37-billion offer to buy CareFirst Inc., a 3.2-million-member not-for-profit Blue Cross plan serving Maryland, Delaware and the District of Columbia. Regulators said that the purchase price was too low and that there were other concerns. WellPoint then abandoned the deal.

WellPoint's latest bid is likely to go through because Cobalt is a for-profit company and not subject to the same regulatory scrutiny, analysts said.

Regulators in Wisconsin said they were awaiting an application on the deal.

"As soon as we get one we'll review it," said Eileen Mallow, assistant deputy insurance commissioner in Wisconsin. "I can't tell you how it will go compared to how it went in Maryland."

"It's a nice fit for WellPoint," said Allan Baumgarten, a health-care consultant in Michigan. "In terms of geographic reach, it's a good strategy and they are likely to avoid some of the problems they had in Maryland."

Cobalt was created in 2001 when United Wisconsin Services merged with Blue Cross & Blue Shield United of Wisconsin. Cobalt was converted to a for-profit venture in 1999.

As part of WellPoint's offer, a nonprofit foundation called Wisconsin United for Health Foundation, which owns a majority of Cobalt's stock, would get $256 million in cash and about 3.1 million shares of WellPoint stock.

The foundation supports public health initiatives by the University of Wisconsin Medical School and the Medical College of Wisconsin.

Although the Cobalt deal is still subject to a shareholder vote, the foundation has agreed to vote in favor of it, making approval likely, executives said. As part of the deal, WellPoint is offering Cobalt shareholders $20.50 a share, composed of $10.50 in cash and 0.1233 WellPoint share for each Cobalt share, making the deal worth about $906 million in cash and stock.

WellPoint's shares rose $1.33 to $84.48 on Wednesday, while Cobalt climbed $2.75 to $20.70, both on the New York Stock Exchange.

WellPoint, with $17.3 billion in revenue last year, recently reported that its first-quarter profit jumped nearly 40% from the previous year, exceeding analysts' predictions, because of new members.

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