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WellPoint CEO Faces Ire of Investor Who Says She Must Go

WellPoint (WLP) Inc.’s Angela Braly chided Barack Obama for spreading “false information” about health insurers two years ago. She’s now facing tough questions about her own performance from investors calling for her ouster.

WellPoint, the second-biggest U.S. insurer, reported earnings last month that missed analyst estimates. The company predicted it would lose 900,000 members and cut its 2012 forecast. Now two investors, citing a litany of complaints, say Braly is the problem.

“There’s a universal view that the CEO is the wrong CEO to lead the business,” Leon Cooperman, one of two investors to speak publicly about Braly’s tenure, said in a telephone interview. Omega Advisors Inc., Cooperman’s New York-based hedge fund, held 2.1 million WellPoint shares, or about 1 percent, as of March.

Similarly, Orbimed Advisors, which held 1.25 million shares in March, attributes “management missteps,” to WellPoint’s poor performance, said Kuhn Tsai, an analyst at the New York- based investment fund.

Omega and Orbimed may be just the tip of the iceberg. Seeking time to forge a response to investors’ complaints, Indianapolis-based WellPoint canceled a previously scheduled management session today with Goldman Sachs Group Inc., according to two investors who spoke on condition their names not be revealed because they’re not authorized to discuss individual stocks or don’t want to lose access to the company.

WellPoint is now arranging a series of meetings to hear out disgruntled investors. The company’s shares rose 2 percent to $57.91 at the close in New York, the best performance among health insurers today.

Board Support

Braly, 51, a lawyer by training who became CEO in 2007 and is one of 20 women now running Fortune 500 companies, has the support of her board, lead director Jacquelyn Ward, 73, said in a statement released after the July 25 earnings report.

The board is “fully involved in the strategy WellPoint is pursuing and is supportive of the strategy and our management team,” Ward wrote in an e-mail.

Critics cite a long list of complaints with WellPoint’s management, including well-publicized difficulties forecasting medical costs and setting premium prices as well as executive ousters under Braly that some contend gutted the company of valuable expertise.

Investors are critical of Braly and WellPoint for spending billions of dollars on share buybacks in recent years with no gain in the stock value. The company bought back $493.7 million in shares at an average price of $68.53 in the second quarter, 17 percent above yesterday’s closing price of $56.79.

Political Conflict

Capping it was Braly’s role in allowing the company to become a lightning rod for the Democratic Party in its 2010 drive to pass the U.S. president’s health-care overhaul.

In early 2010, WellPoint withdrew proposed rate increases of as much as 39 percent for customers in California after state regulators found the company had overestimated expenses. The confrontation drew wide news coverage, with Democrats citing the increases as a reason to pass the health-care law at a time when public support was flagging.

“If you’re CEO, and you’re going to take on the California insurance commissioner, that’s going to play out in the press across the country,” said Robert Laszewski, an industry consultant based in Alexandria, Virginia. “The first thing you ask your staff is ‘Can we double check this? Are we going to get caught with our pants down?’”

President Obama

Even Obama took on WellPoint, following a news report that the carrier had dropped coverage for some breast-cancer patients. The president, without naming the insurer, said in his weekly radio address that his administration had asked a certain health plan to stop singling out cancer victims.

The company denied the reports and Braly fired back in an open letter to the president, writing that she was “disappointed to hear you repeat false information.”

Since Braly took on the added role of chairman in March 2010, the company has lost $9 billion in market value as its stock fell 8.5 percent through yesterday, a decline not lost on analysts who have also been critical of Braly after the earnings report. By comparison, the shares of UnitedHealth Group Inc. (UNH), the only U.S. health plan that is larger than WellPoint, have soared 53 percent during the same period.

The results “put an exclamation point on the differences between United and WellPoint,” Carl McDonald, a Citigroup analyst in New York, wrote in a note to clients following the earnings report. “Time may be running out for WellPoint’s management team.”

Value Comparison

WellPoint traded at a 2 percent premium to an S&P500 index of the top six health insurers when Braly took over as chairman on March 1, 2010. As of yesterday, it changed hands at a 14 percent discount, suggesting investors’ waning confidence.

Braly declined a request for an interview through Kristin Binns, a WellPoint spokeswoman. “These are challenging times, but we believe we have the right long-term strategy in place to win in the market,” the company said in an e-mail.

Braly came to WellPoint with a reputation as “a deal- maker,” not an insurance expert, said Dave Shove, a BMO Capital Markets analyst in New York who downgraded the shares after the quarterly report.

“If you’re running an insurance company, it’s all about operations and execution and she just doesn’t have that background,” Shove said in a telephone interview.

With medical costs no longer slowing and the economy sputtering, WellPoint needs “better organic growth and clean execution,” Shove wrote in a note to clients after the earnings report. “It has become less clear to us if we can expect to see either component.”

Braly’s Fate

Braly’s fate rests with a board that hasn’t seen much change. Ward is one of nine directors who have served for at least eight years. Aside from Braly, it’s only new addition in that time is Robert Dixon, the chief information officer at Purchase, New York-based PepsiCo Inc. (PEP), who joined last year.

WellPoint declined to make Ward available for an interview. Efforts to reach the board members separately were unsuccessful.

WellPoint may bear the biggest bullseye in an industry in transition.

The company owns Blue Cross plans in 14 states and is the nation’s largest seller of policies to individuals and small businesses. Both markets have been losing customers, and are expected to become less profitable because of new rules in the health-care law.

Braly, true to her billing as a deal maker, has tried to diversify ahead of the law’s 2014 implementation.

WellPoint Acquisitions

In June, the insurer agreed to buy eye-wear provider 1-800 Contacts for about $900 million. Last month, it announced the $4.9 billion purchase of Amerigroup Corp. (AGP) to become biggest private provider of Medicaid plans to low-income customers.

“We are investing significantly in our businesses to continue enhancing our future growth opportunities,” WellPoint said in its statement. “And we’re adding experienced new talent to the team to execute on these growth opportunities.”

WellPoint’s hardly the only insurer battling enrollment declines amid the uneven economy and medical costs that have defied projections. Humana Inc. (HUM) cut its profit outlook last week after the Louisville, Kentucky-based company said it saw spending increase. Minnetonka, Minnesota-based UnitedHealth fell even after raising its forecast last month when executives talked of risks to its profit margins.

Corporate Climb

Braly, a mother of three, earned her law degree from Southern Methodist School of Law in Dallas. She joined WellPoint in 2005 after the company bought a Missouri Blue Cross plan where she had risen to chief executive officer.

After heading government affairs and serving as general counsel for WellPoint, she was tapped for the top spot two years later by retiring CEO Larry Glasscock.

It’s not clear whether the company has a replacement within its ranks, said Thomas Carroll, a Stifel Nicolaus & Co. analyst in Baltimore. Chief Financial Officer Wayne DeVeydt, 42, is seen as talented but inexperienced by some investors and too associated with WellPoint’s miscues by others, he said in a phone interview.

Carroll said he also fielded calls from angry investors about the company last month.

For the CEO, he said, “this probably is her last chance.”

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net; Drew Armstrong in New York at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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