After a little bit of modest extortion, the Georgia insurance commissioner came into line for a mere $126m, mostly to be spent on upgrading hospitals and a little for telemedicine. So hey presto, WellPoint is now the nation’s new largest health insurer. Actually it’s Anthem that really took over Wellpoint, but they decided to keep the Wellpoint name. Georgia actually did alright, as once Garamendi set the price in California at $250m, it was clear to everyone that a deal could be done, and Georgia seems to be the only one that got to renegotiate up!
Notably that a deal could be beneficial was clear to Wellpoint management and stockholders, who have seen the share price go up 30% since Garamendi gave his approval, and seen it rise from $85 to $125 in the little over a year since the deal was announced. (Perhaps the insurance commissioners had gone long before the deal!) In effect though the new company is really just an amalgamation of all the Blues that have been bought by the two companies over the last decade. It’s hard to see how beyond shedding some overhead in southern California (and it will be expensive overhead to shed given the buy-out clauses in place) there are actually any real economies of scale to be gained by putting all these Blues together. Add to that the fact that the underwriting cycle will get tougher from here on out, I wouldn’t be a buyer at these levels. On the other hand I’ve been saying that for a year now and if I’d been short, well as the British traders say, I’d be having my arse handed to me on a plate.
By the way, if you spellcheck "Wellpoint" using Blogger’s spellchecker it comes back as "elephant"!