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WellPoint’s CEO Braly Resigns Amid Shareholder Criticism

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WellPoint Inc. Former Chairman and CEO Angela Braly
Angela Braly, former chairman and chief executive officer of WellPoint Inc. Photographer: Andrew Harrer/Bloomberg

WellPoint Inc., the second-biggest U.S. health insurer, has started the search for a new chief executive officer after Angela Braly, in the job for five years, resigned yesterday under pressure from shareholders.

Investors are looking for a CEO who can right the Indianapolis-based company’s financial performance and integrate WellPoint’s recent deals to buy Medicaid insurer Amerigroup Corp. and vision company 1-800-Contacts Inc.

Braly, 51, was ousted after investors, some publicly, expressed discontent with her management. Over the past two weeks, Jackie Ward, WellPoint’s lead independent director, and a second board member met with shareholders to hear their concerns, according to a person familiar with the discussions who wasn’t authorized to comment because the talks were private. The board met yesterday afternoon and reached an agreement with Braly that she should resign, the person said.

“There’s a nice set of assets there,” said Robert Medway, a partner in Royal Capital Management LLC, and one of the investors who publicly called for Braly’s departure. “Now hopefully the board can find a candidate who can bring these assets home,” estimating the insurer’s earnings could grow by as much as 10 percent with the right leadership and integration.

WellPoint gained 7.7 percent to $61.80 at the close of New York trading, its biggest one-day gain since April 2009. The company had fallen 5 percent in the past 12 months through yesterday, compared with a 19 percent rise for UnitedHealth Group Inc., the biggest U.S. health plan.

Severance Pay

Braly will get about $6.3 million in severance pay with her departure, according to the person. That includes a portion of the former CEO’s full-year salary and bonus for 2012. She won’t get an additional settlement, though she’ll keep the company stock received previously as compensation, the person said.

Braly’s severance package was laid out in her employment contract, WellPoint said today in a filing. Her total 2011 compensation was $13.3 million, including a salary of $1.14 million and stock awards valued at $8 million, according to a company filing in April. She was eligible for as much as $7.7 million this year if she resigned, according to the filing, and her employment agreement calls for her stock options and other non-cash compensation to vest within a month of her departure.

Possible Candidates

Even before Braly’s resignation, investors had suggested James Carlson, the Amerigroup CEO, David Snow Jr., the former chief of Medco Health Solutions Inc., and Gail Boudreaux, the head of the health plan division at UnitedHealth, as possible candidates to replace her, said Jason Gurda, of Leerink Swann & Co. in New York, and Thomas Carroll, of Stifel Nicolaus & Co. in Baltimore.

Names touted from within the company included Chief Financial Officer Wayne Deveydt and Kenneth Goulet, an executive vice-president, the analysts said in telephone interviews.

John Cannon, WellPoint’s general counsel, will serve as interim CEO while WellPoint searches for a permanent replacement, the insurer said yesterday in a statement. Cannon isn’t a candidate for the job, according to the statement.

WellPoint’s board has hired the executive search firm Heidrick & Struggles International Inc. to help find a new CEO, according to a person familiar with the process who wasn’t authorized to discuss it.

Quick Action

“They need a CEO who has demonstrated by his or her experience that they have the expertise to run a company the size that WellPoint will be, and they need them sooner rather than later,” said Erik Gordon, a professor at the University of Michigan’s Steven M. Ross School of Business in Ann Arbor.

During her tenure as CEO, Braly became a high-profile foe of President Barack Obama’s health-care overhaul and, more recently, sparked the ire of investors after WellPoint missed earnings estimates and cut its forecast twice in four months.

While Ward and a second director had more investor sessions scheduled this week, they decided they had heard enough and set held the board meeting yesterday, according to the person familiar with the timing.

“I have spoken with our board and we have agreed this is the right action for WellPoint at this time,” Braly said in a memo to company employees. “The board and I feel, though, that the company will benefit from getting a fresh perspective on ways we can improve execution across the company.”

Attempts to reach Braly were unsuccessful.

Royal Management

The Royal Management Group was one of the investors to criticize Braly’s management publicly, calling for her replacement in an Aug. 23 interview with Bloomberg News. That followed similar criticism from shareholders Orbimed Advisors LLC, an investment fund, and hedge fund Omega Advisors Inc.

Medway yesterday said WellPoint will benefit from the change, calling it “a pleasant surprise that boards of directors sometimes do their jobs.”

WellPoint traded at a 2 percent premium to an S&P 500 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 17 percent discount, suggesting investors’ waning confidence. The company has lost about $9 billion of its value during that time, according to data compiled by Bloomberg.

Critics have cited a variety of issues with Braly’s leadership since she took over as CEO in June 2007, including difficulties forecasting medical costs and setting premium prices. They also said she forced out executives who had valuable expertise.

Buybacks Criticized

Investors have also been critical of 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, 16 percent above yesterday’s closing price.

Before her resignation, Braly, who was one of 20 women running Fortune 500 companies, had been backed by the board in response to the criticism with two public statements.

“Now is the right time for a leadership change,” Ward, named non-executive board chairman, said yesterday in the company’s statement announcing the departure. “We believe the remaining executive team is dynamic and strong, with great potential to drive WellPoint’s future success.”

In June, WellPoint agreed to buy eye-wear provider 1-800-Contacts Inc. for about $900 million. Last month, it announced the $4.9 billion purchase of Amerigroup Corp. to become the biggest private provider of plans for Medicaid, the federal-state program for the poor.

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