Case Study Short Essay Examination Questions

question 33

Essay

Case Study Short Essay Examination Questions
Anthem-Well Point Merger Hits Regulatory Snag
In mid-2004, a California insurance regulator refused to approve Anthem Inc's ("Anthem") $20 billion acquisition of WellPoint Health NetWorks Incorporated ("WellPoint"). If allowed, the proposed merger would result in the nation's largest health insurer, with 28 million members. After months of regulatory review, the deal had already received approval from 10 state regulators, the Justice Department, and 97% of the shares outstanding of both firms. Nonetheless, California Insurance Commissioner, John Garamendi, denounced the proposed transaction as unreasonably enriching the corporate officers of the firms without improving the availability or quality of healthcare. Earlier the same day, Lucinda Ehnes, Director of the Department of Managed Healthcare in California approved the transaction. The Managed Healthcare Agency has regulatory authority over Blue Cross of California, a managed healthcare company that is by far the largest and most important WellPoint operation in the state. Mr. Garamendi's department has regulatory authority over about 4% of WellPoint's California business through its BC Life & Health Insurance Company subsidiary ("BC"). Interestingly, Ms. Ehnes is an appointee of California's Republican governor, Arnold Schwarzenegger, while Mr. Garamendi, a Democrat, is an elected official who had previously run unsuccessfully for governor. Moreover, two week's earlier he announced that he will be a candidate for lieutenant governor in 2006.
Mr. Garamendi had asked Anthem to invest in California's low income communities an amount equal to the executive compensation payable to WellPoint executives due to termination clauses in their contracts. Estimates of the executive compensation ranged as high as $600 million. Anthem immediately sued John Garamendi, seeking to overrule his opposition to the transaction. In the lawsuit, Anthem argued that Garamendi acted outside the scope of his authority by basing his decision on personal beliefs about healthcare policy and executive compensation rather than on the criteria set forth in California state law. Anthem argued that the executive compensation payable for termination if WellPoint changed ownership was part of the affected executives' employment contracts negotiated well in advance of the onset of Anthem's negotiations to acquire WellPoint. The California insurance regulator finally dropped his objections when the companies agreed to pay $600 million to help cover the cost of treating California's uninsured residents.
Following similar concessions in Georgia, Anthem was finally able to complete the transaction on December 1, 2004. Closing occurred almost one year after the transaction had been announced.
:
-If you were the Anthem CEO,would you withdraw from the deal,initiate a court battle,drop the Blue Cross subsidiary from the transaction,agree to regulators' demands,or adopt some other course of action? Explain your answer.

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