Major Med. Ins. Merger
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| Sat, 07-31-2004 - 1:52pm |
http://www.venturacountystar.com/vcs/co_valley/article/0,1375,VCS_166_3061587,00.html
Anthem, WellPoint merger is rejected
State insurance chief's move delays $16.4 billion transaction
By Jim Wasserman, The Associated Press
July 24, 2004
State Insurance Commissioner John Garamendi rejected a proposed $16.4 billion merger Friday between healthcare giants Anthem Inc. and WellPoint Health Networks Inc., causing a drop in stock prices and stalling the deal.
His announcement came just hours after a state agency signed off on the proposed merger that would create the nation's largest health insurer.
Garamendi said the deal would pull millions of dollars out of California, lower healthcare quality for consumers and give too much severance pay to executives while 6 million state residents lack health insurance.
"I cannot in good conscience approve this transaction," he said during a San Francisco news conference. "I do not believe it is in the best interests of California policyholders."
Garamendi said it was an extraordinary deal for executives, a reasonable one for stockholders, but lousy for the state.
Anthem Chief Executive Officer Larry Glasscock said Garamendi's disapproval creates an uncertain timetable to absorb WellPoint and insure a combined 28 million people. During an Indianapolis news conference, he said there's no plan to give up on the deal.
"I believe that this transaction is going to happen," he said.
Trading suspended
Prices of both company stocks fell Friday before trading was suspended at the request of the two firms. Indianapolis-based Anthem shares fell 1.3 percent while Thousand Oaks-based WellPoint shares dropped 1.7 percent. Garamendi's announcement was timed after the close of the New York Stock Exchange, but Anthem spread the word early that he had phoned the company with his decision.
Glasscock also said he was considering suing Garamendi, and executives at both companies accused the insurance commissioner of playing politics for personal gain.
"We find it unbelievable that an elected official who claims to protect consumer interests would put his own political ambition over the welfare of the people he is sworn to serve," WellPoint Chief Financial Officer David Colby said in a statement.
Without Garamendi's approval, the companies might need to shed some California businesses, investors said.
"It would be a pretty big negative," said Steven Hill, who helps manage $3.5 billion at First Investors and holds Anthem shares.
"In theory, you could put the merger through and carve out California, but I don't know that you would want to."
No plan to renegotiate
WellPoint Chief Executive Officer Leonard Schaeffer said the companies do not plan to renegotiate the merger agreement.
"I think (Garamendi) is wrong on the facts and overstepped his authority," Schaeffer told the Ventura County Star. "The legal standard is not his personal opinion."
The California Department of Managed Health Care's approval earlier Friday removed one of two significant roadblocks remaining to merge Anthem and WellPoint, the parent of Blue Cross of California.
Anthem plans to move WellPoint operations to its Indianapolis headquarters but has repeatedly maintained it will leave Blue Cross operations largely intact in California.
Garamendi has been one of the merger's leading critics, demanding the companies contribute $600 million to California's uninsured population as a condition of his approval.
Friday, he charged that the deal would pull $400 million a year out of California for three years and an unlimited amount afterward to help Anthem finance the WellPoint takeover. He also criticized a $76 million payout to Schaeffer, who would lose his job but stay on as chairman of the combined companies.
Schwarzenegger approval
Garamendi said that amount could provide a year's worth of insurance coverage for 47,000 children.
The U.S. Department of Justice and nine other affected states and Puerto Rico, where the companies operate,already have approved the merger.
Cindy Ehnes, director of the California Department of Managed Health Care, announced the Schwarzenegger administration's support for the deal.
"We have negotiated a pact that is a good deal for consumers and sends a strong message that California is a state with a competitive and healthy marketplace where business is welcome," she said.
Ehnes said WellPoint and Anthem agreed to numerous concessions for the change in ownership of Blue Cross of California, which insures 7 million Californians.
Among them, Blue Cross would invest $17 million in mental health and child obesity programs, up to $100 million over 20 years for healthcare in rural and underserved communities, and $5 million over three years to increase enrollment in the state's Healthy Families Program.
Ehnes said the merger received the highest level of scrutiny.
The department, initially reluctant to schedule a public hearing on the merger, held a July 9 hearing, where most testimony was sharply critical of the deal.
Schaeffer said the concessions Anthem made with the California Department of Managed Health Care were nearly identical to those offered Garamendi.
"On the big issues, the things John Garamendi wanted, he got," said Schaeffer, adding that "all the things we agreed to didn't matter" to the commissioner.
Leading Democratic officials, including Garamendi and state Treasurer Phil Angelides, called the executive compensation package obscene, though both companies maintained the package follows industry standards.
-- Other wire services and Star staff writer Deborah Crowe contributed to this story.
On the Net: California Department of Managed Health Care: http://www.hmohelp.ca.gov
Anthem, Inc.: http://www.anthem.com
WellPoint Health Networks, Inc.: http://www.WellPoint.com

I think we are experiencing what happens when unregulated corporations without moral leaders run amok. We are in real danger now that corporate money is running America.
Amid China's Boom, No Helping Hand for Young Qingming
By JOSEPH KAHN
and JIM YARDLEY
Published: August 1, 2004
PUJIA, China — His dying debt was $80. Had he been among China's urban elite, Zheng Qingming would have spent more on a trendy cellphone. But he was one of the hundreds of millions of peasants far removed from the country's new wealth. His public high school tuition alone consumed most of his family's income for a year.
He wanted to attend college. But to do so meant taking the annual college entrance examination. On the humid morning of June 4, three days before the exam, Qingming's teacher repeated a common refrain: he had to pay his last $80 in fees or he would not be allowed to take the test. Qingming stood before his classmates, his shame overtaken by anger.
"I do not have the money," he said slowly, according to several teachers who described the events that morning. But his teacher — and the system — would not budge.
A few hours later, Qingming, 18 years old, stepped in front of an approaching locomotive. The train, like China's roaring economy, was an express.
If his gruesome death was shocking, the life of this peasant boy in the rolling hills of northern Sichuan Province is repeated a millionfold across the Chinese countryside. Peasants like Qingming were once the core constituency of the Communist Party. Now, they are being left behind in the money-centered, cutthroat society that has replaced socialist China.
China has the world's fastest-growing economy but is one of its most unequal societies. The benefits of growth have been bestowed mainly on urban residents and government and party officials. In the past five years, the income divide between the urban rich and the rural poor has widened so sharply that some studies now compare China's social cleavage unfavorably with Africa's poorest nations.
For the Communist leaders whose main claim to legitimacy is creating prosperity, the skewed distribution of wealth has already begun to alienate the country's 750 million peasants, historically a bellwether of stability.
The countryside simmers with unrest. Farmers flock to the cities to find work. The poor demand social, economic and political benefits that the Communist Party has been reluctant to deliver.
To its credit, the Chinese government invigorated the economy and lifted hundreds of millions of people out of abject poverty over the past quarter century. Few would argue that Chinese lived better when officials still adhered to a rigid idea of socialist equality.
But in recent years, officials have devoted the nation's wealth to building urban manufacturing and financial centers, often ignoring peasants. Farmers cannot own the land they work and are often left with nothing when the government seizes their fields for factories or malls. Many cannot afford basic services, like high school.
This year, the number of destitute poor, which China classifies as those earning less than $75 a year, increased for the first time in 25 years. The government estimates that the number of people in this lowest stratum grew by 800,000, to 85 million people, even as the economy grew by a robust 9 percent.
No modern country has become prosperous without allowing some people to get rich first. The problem for China is not just that the urban elite now drive BMW's, while many farmers are lucky to eat meat once a week. The problem is that the gap has widened partly because the government enforces a two-class system, denying peasants the medical, pension and welfare benefits that many urban residents have, while often even denying them the right to become urban residents.
Even in a country that ruthlessly punishes dissent, some three million people took part in protests last year, police data show. Most were farmers, laid-off workers and victims of official corruption, who blocked roads, swarmed government offices, even immolated themselves in Tiananmen Square in Beijing to demand social justice.
Full article:
http://www.nytimes.com/2004/08/01/international/01CHIN.html?hp