Anthem Files Lawsuit Against Calif. Commissioner

August 4, 2004

Anthem Inc. filed a lawsuit against the California Insurance Commissioner in the Superior Court of the State of California for the County of Los Angeles.

The suit seeks to set aside the Commissioner’s decision to disapprove Anthem’s application to acquire control of BC Life & Health Insurance Company in connection with the proposed merger of WellPoint Health Networks Inc. with Anthem. The suit also requests the Court to declare that Anthem’s application to acquire control of BC Life satisfied all the legal standards for approval and enjoin the Commissioner from blocking the completion of the merger between Anthem and WellPoint. BC Life, a WellPoint subsidiary, would represent approximately 4 percent of the combined revenues of the merged companies.

“The Commissioner is required to follow California law in making his decision and he failed to do that,” said David R. Frick, chief legal officer of Anthem Inc. “That is why we have unfortunately had to file this lawsuit.”

“Filing this lawsuit is something we did not want to do,” said Larry C. Glasscock, chairman, president and chief executive officer of Anthem Inc. “However, we genuinely feel we have met all the legal requirements necessary for approval of the merger.”

“The Commissioner’s denial of the merger blocks Anthem’s voluntary commitment that will generate as much as $450 million of investments over a 20-year period aimed at enhancing the availability of health care facilities and services in underserved California communities. The Insurance Commissioner has gone beyond the scope of authority granted to him under California law in denying our merger and in doing so he has hurt the very people he states he is trying to help,” added Frick.

The proposed merger of Anthem and WellPoint has already been reviewed and approved by regulators in Texas, Illinois, Delaware, Virginia, Georgia, Missouri, Oklahoma, West Virginia, Wisconsin and Puerto Rico. Each of those regulators applied substantially identical standards contained in laws adopted by virtually all states, including California. The proposed merger has also been reviewed by the California Attorney General, the United States Department of Justice and the Federal Trade Commission. It has been approved by the California Department of Managed Health Care (DMHC), which regulates approximately 90 percent of WellPoint’s California business and is responsible for ensuring that covered Californians have appropriate access to quality health care, and unanimously approved by the directors of the Blue Cross Blue Shield Association. In addition, shareholders of both companies, by a vote of 97 percent, overwhelmingly approved the merger in separate shareholder meetings earlier this year.

“We have met all of the standards necessary for approval by the California Department of Insurance, just as we have met the demanding standards of the DMHC and the standards of regulators in every one of the 10 other jurisdictions where approval was required. Each of those other regulators, after a careful and thorough review, has ruled in favor of this merger,” said Frick. “The Commissioner’s decision is unlawful and we are asking the court to overturn his action and assure approval for the merger.”

A copy of Anthem’s complaint is available at in the section titled Press Room.

Garamendi released a statement in response to the lawsuit:

“I welcome this lawsuit. This action will give me an opportunity to present the full story of how the merger of Anthem and WellPoint would be unfair, unreasonable, and prejudicial to California policyholders. My decision to deny Anthem Inc.’s acquisition of BC Life and Health Insurance Company was made solely in the interest of protecting health care consumers. As I have said repeatedly, nothing in this deal benefits California policyholders. It merely saddles them with the cost of the transaction. The merger, valued at $15.5 billion, will require nearly $4 billion in cash payments, resulting in $3.4 billion in debt. Because dividends paid to the new WellPoint by its health care subsidiaries are the Only source of funds to repay that debt, it is clear that businesses and individuals who purchase the new company’s policies will be stuck with the bill,” he said.

“In the suit, Anthem and WellPoint challenge my legal authority to reject this transaction. My authority is clear and it is broad. It is set forth in the Insurance Code, section 1215.2(d)(3) and (4), which provides that I may disapprove the transaction if I find that the financial condition of the acquiring company might prejudice the interests of policyholders, or if I find that the plans or proposals that the acquiring company has to liquidate the insurer, to sell its assets, to merge it with any other company, or to make any other major change in its business or corporate structure or management, are not fair and reasonable to policyholders.

“I have found that this transaction would be prejudicial, unfair and unreasonable to the California policyholders, who would pay, in part, for the approximately $3.4 billion in debt that WellPoint would carry after the merger. I have also found that this transaction would be prejudicial, unfair and unreasonable to the California policyholders who would pay, in part, for the $200 million to $600 million in compensation that would be given to executives. This transaction would be prejudicial, unfair and unreasonable to policyholders because the few benefits it would provide are far less than its costs,” Garamendi added.

“Anthem and WellPoint argue that I have abused my discretion by making a decision to protect Californians. I welcome this suit, and look forward to the opportunity to present in court all of the facts and the reasons why this deal doesn’t work for California policyholders.”

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