WellPoint’s Amerigroup Deal Buying CEO Braly Time

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Angela Braly, the WellPoint Inc. chief executive officer under fire after cutting the insurer’s earnings forecast, may have until early 2013 to right the ship as her board awaits the close of the $4.9 billion Amerigroup Corp. acquisition announced last month.

The deal is the largest since Braly became CEO in 2007. It adds 3 million members to WellPoint’s rolls and is scheduled to be completed by March 2013. In the meantime, the board probably wants leadership to remain stable, said Erik Gordon, a University of Michigan business professor.

WellPoint, the second biggest U.S. health plan, is in the midst of a series of meetings to hear out investors after the company missed analysts’ estimates for the second time in three quarters and said it would lose 900,000 members. Since March 2010, when Braly added the chairman’s title, the Indianapolis-based company has lost $9 billion in market value, according to data compiled by Bloomberg.

“This is the pattern you often see before a CEO exit is negotiated,” Gordon, who follows the health-care industry, wrote in an e-mail from Ann Arbor. “But she bought herself some time because it would be unusual to remove a CEO in the middle of a major acquisition.”

The company’s shares slipped 1.8 percent to $56.89 at the close in New York and have fallen 5.8 percent in the past 12 months.

In interviews last week, two investors described the 51-year-old Braly as the reason for the company’s troubles.

Universal View

“There’s a universal view that the CEO is the wrong CEO to lead the business,” said Leon Cooperman, founder of New York-based Omega Advisors Inc., in a telephone interview. Cooperman’s hedge fund held 2.1 million WellPoint shares as of March.

Kuhn Tsai, an analyst at Orbimed Advisors in New York, which held 1.25 million shares in March, also attributed the company’s poor performance to “management missteps.”

Critics have cited a 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 questioning her leadership,” said Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, in a telephone interview. “But they don’t know who the replacement would be. You need to have somebody waiting in the wings.”

The pending acquisition also makes it “tricky” to change leaders at this time, according to Gupte. “To get a half-billion dollar deal past a board requires jumping through a lot of hoops,” she said.

Director’s Response

Last week’s criticism drew a response from Lenox Baker, a retired cardiac surgeon who has been on WellPoint’s board for about a decade. He said there’s been no move among directors to replace Braly, and he dismissed Wall Street critics for “worrying every little month what’s going on.”

“Angela, I think, has done a great job,” Baker said in a telephone interview from his ranch in Wyoming. “Quite frankly, I think some of this stuff with the company is coming from Wall Street. I’m much more looking to the future.”

He blamed medical claims fluctuations for some of the company’s financial results.

“A little of this is out of our control, when claims start going up,” he said. “Whenever you’re not doing as well as you’d like to do, you’d like to do better.”

‘Out of Touch’

Baker’s comment “shows that he is out of touch with the shareholders,” said Gordon, the University of Michigan professor. “Their discontent is not as he says about ‘worrying every little month.’ It is about years of underperformance. It’s not the shareholders who are asleep at the wheel.”

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.

The decision to buy Virginia Beach, Virginia-based Amerigroup, announced July 9, will make WellPoint the largest private provider of Medicaid plans for low-income patients. The program is expected to add more than 15 million people over the next decade, under President Barack Obama’s health-care overhaul, just as states also look to save money by contracting more of their Medicaid business to managed-care companies.

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