INDIANAPOLIS — WellPoint Inc., the nation's largest health insurer, moved Tuesday to expand its reach by acquiring New York-based WellChoice Inc. in a deal aimed at boosting business with national companies headquartered around New York City. Doctors warned the deal could be bad for consumers.
The deal, valued at $6.5 billion in cash and stock, gives Indianapolis-based WellPoint an important inroad into the New York area with 5 million new customers and access to nationwide accounts, company officials said.
WellPoint said it would pay $77.23 in cash and stock per WellChoice share, about 9.4 percent more than WellChoice's closing price Monday.
WellChoice shares rose $4.91, or 7 percent, to close at $75.51 Tuesday on the New York Stock Exchange, while WellPoint fell 8 cents to $75.01.
Together, WellPoint and WellChoice will serve more than 33 million members in 14 states.
"We believe there's much to be gained by combining strengths of each organization," said Larry Glasscock, WellPoint's president and chief executive officer. "Our combined companies are strongly positioned to compete in the marketplace."
Glasscock said some WellChoice workers will be laid off as a result of the deal but did not specify how many jobs would be affected.
Better known as Empire Blue Cross Blue Shield, WellChoice is the largest health insurer in New York state. Previously a nonprofit, it converted to a profit-making venture in 2002 and went public. It is the last independent, publicly traded, for-profit Blue Cross plan in the country.
WellPoint, which has about 28 million customers, also uses the Blue Cross and Blue Shield brand names for its subsidiaries. The company formed last year, when Anthem bought WellPoint Health Networks Inc. and changed its name.
Michael Stocker, WellChoice's president and chief executive officer, will become the new CEO of WellPoint's Northeast region. He said the merger would help WellChoice hold down the rising cost of health insurance and that consumers won't notice any change in their policies or provider networks.
"It will be seamless for WellChoice customers," Stocker said. "They will continue to be served by the same health company they know today."
Dr. James Rohack, a trustee of the American Medical Association and a Texas cardiologist, said mega-mergers in the health insurance industry don't lower premiums or increase the benefits offered to patients.
"We believe that these large consolidations of the insurance industry have prevented competition from occurring at the local level that could keep costs under control and reduce prices for patients," he said.
Lynda Lees Adams, a spokeswoman for the Medical Society of the State of New York, said the deal could also be bad for doctors.
"The more power an insurance company has, the more likely it is to tell a doctor what treatments he can and cannot do," she said.
The companies said they expected the transaction to close during the first quarter of 2006 pending stockholder backing and approvals by New York, New Jersey and federal regulators.
The New York Public Asset Fund, which holds 62 percent of WellChoice's stock, has approved the acquisition.
The deal is expected to be neutral to earnings this year but will boost profit beyond 2006, WellPoint said. The company is projecting pretax cost savings of $25 million in 2006, $50 million in 2007 and at least $125 million by 2010.