Two Southeast States Could Reconsider Anthem/WellPoint Merger

Georgia and West Virginia are two southeast states that could reconsider their earlier approval of the Anthem Inc./WellPoint merger, after California’s $265 million concessions package in California.

Seven other states, plus Puerto Rico, that may reconsider their earlier approval of the merger are Delaware, Illinois, Missouri, Oklahoma, Texas, Virginia and Wisconsin. These states don’t have California’s clout to negotiate, but are sure to try.

Stock analysts told investors that any re-appraisals of the merger by key states that regulate the two companies aren’t likely to lead to demands that Anthem ante up further concessions that rival those in California.

Even though Anthem is based in Indianapolis, Indiana doesn’t have a role in reviewing the merger because there are no WellPoint operations in the state.

The deal, whose value has risen from $16 billion to over $18 billion based on a recent run-up in Anthem’s share price, sealed the last state regulatory approval that Anthem needs to acquire WellPoint.

But the financial concessions California negotiated with Anthem are large enough that other state regulators may see them as a drain on Anthem’s overall financial health, causing them to reconsider their approvals.

“Concern seems to center on ensuring that (the) additional concessions in California ‘don’t come from my state,'” wrote stock analyst Thomas A. Carroll, of Legg Mason Inc., in a report to investors.

In its settlement with California’s two insurance regulatory agencies, Anthem agreed to put $200 million in healthcare-related investments in California for 20 years and grant another $65 million to California programs that train nurses and extend health care to children and the poor.

The $200 million will be taken from WellPoint’s investment portfolio and should bring Anthem a profitable return by being invested in such things as hospital bonds, Anthem spokesman Ed West said.

“It’s not a grant,” he said of the biggest chunk of the concessions Anthem will make in California.

In some of the states reviewing the Anthem-WellPoint merger, there is no precedent for their insurance regulatory agencies demanding financial concessions as a condition of granting an approval for a merger.

Dr. Curt Morrison, a healthcare analyst for the investment firm Morningstar, in Chicago, said it’s uncertain how other states will react.

“I am afraid other state regulators may see the honey pot Garamendi harvested for California and be tempted to extract their own favors from Anthem,” he said.