CEOs say few jobs will be eliminated in Cobalt takeover

CEOs say few jobs will be eliminated in Cobalt takeover
The acquisition of Cobalt Corp. by WellPoint Health Networks Inc. will not result in any significant job losses in Milwaukee, according to the chief executive officers of both companies.
In a joint conference call with the media June 4, Stephen Bablitch, CEO of Cobalt, said, “The expectation is that it will remain the same here. To the extent that there’s duplication of services, that may result in some minor job loss, but we don’t expect anything major at this time.
“The merger with Wellpoint will enhance our ability to grow … Our intention is to grow our market share profitably,” Bablitch said.
Leonard Schaeffer, chairman and chief executive officer of Thousand Oaks, Calif.-based WellPoint, said that when WellPoint acquired the Blue Cross & Blue Shield of Georgia, local employment in Georgia actually grew by 113 jobs.
Cobalt, the largest health maintenance organization (HMO) in Wisconsin, currently has 2,200 employees in the state.
Cobalt is the Blue Cross & Blue Shield health insurance licensee for Wisconsin.
Cobalt’s health maintenance organizations (HMOs) – Compcare Blue, Unity Health Plans and Valley Health Plans – cover about 300,000 members in Wisconsin.
Cobalt also provides point-of-service (POS) plans, specialty health care products and related administrative service.
WellPoint and Cobalt officials said Milwaukee will continue to be the headquarters for Blue Cross & Blue Shield United of Wisconsin and the national headquarters for the combined company’s Medicare Part A claim processing business. Currently, more than 600 employees work in that division at Cobalt’s downtown Milwaukee offices, located at 401 W. Michigan St.
Schaeffer said the Wisconsin operation will continue to be locally directed.
He said the fates of Bablitch, as well as Cobalt president Michael Bernstein and vice president Timothy Cullen, have not been determined, because “all three of those gentlemen have been scrupulous” in keeping their futures out of the negotiations for the acquisition.
“We have yet to have those discussions,” Schaeffer said, adding that the local leadership team likely will not be determined until the acquisition is approved by the shareholders of the companies and approved by the Office of the Commissioner of Insurance in Wisconsin.
“The management team will reside here,” Schaeffer said in the media call from Milwaukee. “We see significant growth potential for the ‘Blue’ brand in Wisconsin.”
Schaeffer said he did not anticipate any immediate changes in Cobalt’s relationships with its vendors, some of whom are other Wisconsin-based companies.
Blue Cross & Blue Shield United of Wisconsin members ultimately will have more choices and products to choose from when the acquisition is completed, Schaeffer said.
The acquisition, with a total value estimated at $906 million, will create a significant windfall for the Wisconsin United for Health Foundation. The foundation will receive approximately $513 million in additional funding, including $256 million in cash and the remainder in shares of WellPoint common stock.
Those funds will create endowments that will be dedicated to promoting the health care of Wisconsin residents after Cobalt Corp. is acquired by the nation’s second-largest health insurer.
The funds will be distributed evenly to the Medical College of Wisconsin in Milwaukee and the University of Wisconsin Medical School in Madison.
The Medical College will use 35 % of the annual interest from its endowment to fund community public health initiatives throughout the state, said Richard Katschke, spokesman for the college.
The remaining 65 % will fund educational and research programs at the college, he said. Those programs will focus on the major health issues facing the state’s residents, including cardiovascular disease and cancer, Katschke said.
The endowment will help the state compensate for the funds it lost from the tobacco settlement money Gov. Scott McCallum used to help balance the state budget, Katschke said.
“This is an opportunity to benefit generations of people in Wisconsin,” Katschke said. “The monies can’t be used for bricks and mortars, and it can’t replace any programs that are in place. It’s got to be new initiatives.”
The educational and research programs could result in additional jobs being created at the college, Katschke said.
“New positions could be created. This could result in expanded workforce. At this point, we don’t know how many jobs that will be,” Katschke said.
The foundation owns approximately 60 % of the outstanding shares of Cobalt and has agreed to vote in favor of the acquisition.
The transaction will result in Milwaukee losing the corporate headquarters of another publicly traded company.
Small Business Times first reported last September that Cobalt could become a takeover target by WellPoint, based on speculation by Robert W. Baird & Co. Inc. analyst Craig Kennison.
“Cobalt also may be in an enviable market position, in that it is one of just three publicly held companies in the Blue Cross & Blue Shield network of 43 companies,” SBT reported Sept. 27, 2002. “That could make Cobalt a takeover target of WellPoint Health Networks of Thousand Oaks, Calif., and Anthem Inc. of Indianapolis, Ind., which have been buying up the publicly traded blues affiliates, Kennison said.”
Kennison said June 4 that federal securities regulations prohibited him from further discussing the Cobalt acquisition. Kennison is the Baird analyst who covers Cobalt, and Baird also is acting as an advisor to the foundation that will receive the windfall from the transaction.
The SBT report last September noted that Cobalt was one of the top 20 performing U.S. stocks since the previous year’s 9-11 terrorist attacks, based on a review of stocks for companies with a minimum market capitalization of $25 million and a minimum share price of $5.
At that time, Cobalt’s shares had risen 173 % to $18.10.
Cobalt’s recent successes came after some corporate hiccups. The company had withdrawn a proposed secondary stock offering last August, due to unfavorable market conditions. Cobalt also announced plans to close its claims and customer service departments in Stevens Point and Evansville, eliminating 176 jobs, after the firm lost $140 million from 19999 through 2001.
Cobalt bounced back to compile a net income of $73.9 million in 2002.
“I am convinced that this merger will be good for our customers, the policy holders, our employees and our shareholders, and will enable the Wisconsin United for Health Foundation to advance public health in the state,” Bablitch said.
The acquisition marks the continued growth of WellPoint, which is ranked #103 on Fortune magazine’s 2003 Fortune 500 list of America’s largest corporations.
June 13, 2003 Small Business Times, Milwaukee