WellPoint, Inc. (NYSE: WLP) and WellChoice, Inc. (NYSE: WC) jointly announced today that they have signed a definitive merger agreement whereby WellChoice would operate as a wholly owned subsidiary of WellPoint. The transaction brings together WellChoice, the parent company of Empire Blue Cross Blue Shield, the largest health insurer in the State of New York, and WellPoint, the nation's leading health benefits company. The combined company will now serve more than 33 million medical members as a Blue Cross or Blue Cross Blue Shield licensee in 14 states and through its HealthLink and UniCare subsidiaries. "This merger brings together two very strong companies focused on providing consumers with the best possible value in health benefits," said Larry C. Glasscock, president and chief executive officer of WellPoint. "Additionally, both companies share the strength and tradition of the Blue Cross Blue Shield brand, one of the most trusted brands in America." "Our companies also share a vision of improving health care," Glasscock said. "Together, we can make that vision a reality by continually developing innovative products that meet customers' needs, by enabling consumers to make better informed health care decisions, and by working collaboratively with hospitals and physicians to improve quality and safety. In doing so, we will help hold down the rising cost of health care." "While premiums must keep pace with rising health care costs, we can assure our members in all of our states that this merger will not add in any way to premium increases," Glasscock added. "Both WellPoint and WellChoice have strong track records of reducing administrative costs while improving customer satisfaction. The synergies we can achieve through this merger, along with the ability to spread administrative costs over a larger membership base, will contribute to our ongoing efforts to keep premiums affordable for customers. Because both WellChoice and WellPoint believe that all health care is local, our merger provides that WellChoice customers will continue to be served by the same local health plan they know today, with decisions made by local management based in New York City." After the close of the transaction, Michael Stocker, M.D., president and chief executive officer of WellChoice, will become president and chief executive officer of a newly combined Northeast Region of WellPoint. As such, Dr. Stocker will have responsibility for business operations in New York, Connecticut, New Hampshire and Maine. He will serve on WellPoint's Executive Leadership Team and report directly to Glasscock. The headquarters for the Northeast Region will be located in lower Manhattan. "This transaction serves the best interests of all our important constituencies and we are very pleased to become part of an enterprise that shares our vision and focus on quality health care at an affordable price," said Dr. Stocker. "Our customers will experience no disruption, and there will be no changes in our networks or benefits as a result of the merger. When combined, our companies will be ideally positioned to promote preventative health care, to engage consumers in maintaining their own good health, and to make the investments necessary to lead positive change in our country's health care system. At the same time, we will be able to draw upon the resources of the nation's leading health benefits company to serve our customers even better." Glasscock added, "It is more important today than ever before for companies to be socially responsible and actively involved in helping make their communities better places to live and work. Both WellChoice and WellPoint have long histories of significant charitable contributions and community involvement, and combined, our role in the community will be even more effective." The merger will strengthen WellPoint's leadership in providing health benefits to National Accounts - large employers with multi-state operations. New York City is the headquarters of more Fortune 500 companies than any other U.S. city, and the merger gives WellPoint a strategic presence in this important market. Both companies have achieved growth among large national employers, building on the strength of the Blue brand and its broad national networks of physicians and hospitals. With Blue plans in 14 states, the combined company can offer large national employers leading local presence in more markets than any other health benefits company. The merger will also enhance the combined company's ability to offer consumer-driven health solutions, which are a growing choice of consumers and employers alike. In June, WellPoint acquired Lumenos, a pioneer and leader in consumer-driven health plans, and WellChoice has incorporated Lumenos technology into its Empire Total Blue consumer-driven product. "Our recent acquisition of Lumenos, combined with WellChoice's successful deployment of Lumenos features in Empire Total Blue, will allow us to immediately offer Lumenos' full product line to new and existing National Accounts headquartered in WellChoice's service area," Glasscock said. Both companies believe that maintaining a strong local presence is very important in the delivery of health benefits, and that philosophy will continue with the merger. In addition, opportunities for professional growth could be created for employees of both WellPoint and WellChoice as a result of the merger. This transaction is expected to be neutral to 2006 earnings per share and accretive thereafter. At least $25 million in pre-tax synergies are expected to be realized in 2006 and approximately $50 million in 2007, with annual pre- tax synergies of at least $125 million expected to be fully realized on an annual basis by 2010. The transaction is structured as a merger of WellChoice, Inc. with a wholly owned subsidiary of WellPoint and is intended to be tax free with respect to the WellPoint stock to be received in the transaction by WellChoice stockholders. The consideration of $77.23 per share to be received by the stockholders of WellChoice will be comprised of $38.25 in cash and WellPoint stock at a fixed exchange ratio of .5191 of a share of WellPoint stock for each share of WellChoice stock (valued at $38.98 per share at the market close on September 26, 2005). The transaction will be accounted for under the purchase method of accounting. The New York Public Asset Fund, which currently owns approximately 52 million shares of WellChoice common stock, will receive approximately $1.989 billion in cash and approximately 27 million shares of WellPoint common stock from the merger based on Monday's closing stock price. The New York Public Asset Fund has agreed to vote its shares, representing approximately 62% of the outstanding shares of WellChoice, Inc., in favor of the transaction. The transaction will be subject to customary closing conditions, including approval of WellChoice's stockholders and various regulatory approvals. WellPoint and WellChoice currently expect the transaction to close in the first quarter of 2006.
