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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - SEPTEMBER 27, 2005 12:00 AM (EDT)
A.M. Best Co. has commented that WellPoint, Inc.'s (WellPoint) [NYSE: WLP] (Indianapolis, IN) proposed acquisition of WellChoice, Inc. (WellChoice) [NYSE: WC] (New York, NY) for $6.5 billion will further strengthen the reach of the largest health care company within the northeast when completed. WellChoice serves over five million members in a market that includes New York City, 10 downstate counties and selected counties in upstate New York.
The transaction is expected to be financed with a mix of stock, cash and debt. The resulting debt-to-capital level should be approximately 23% and is expected to remain below WellPoint's maximum stated level of 25%. Pending regulatory approval, the transaction is expected to close in the first quarter 2006.
The acquisition is consistent with WellPoint's focused strategy of aligning dedicated businesses and focusing on specific markets. Traditionally, WellPoint's acquisitions have followed a conservative and controlled expansion strategy, with the focus being on key market segments and successful integration. A.M. Best expects WellPoint's track record of successful, conservative and controlled acquisition and integration to continue after the merger.
WellPoint's increases in enrollment, diversified sources of earnings, solid capitalization and strong operating cash flows and growth in earnings are expected to continue. WellPoint's diversified revenue sources and consistent profitability reduce its dependence on any one customer or segment, and the merger with WellChoice further accentuates these attributes.
A.M. Best's primary concern is WellPoint's growing capital structure exposure to goodwill impairment. WellPoint's continued acquisitions and mergers can continue to grow this exposure, which could negatively impact the firm's capital structure. Debt-to-tangible capital was 78.3% at year-end 2004 and is expected to increase to 91.4% after the close of the WellChoice transaction.
A.M. Best expects to conduct a full review of WellChoice prior to close, after which ratings will be assigned to its entities.
For Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.
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