Lubricating mergers
The executives at WellPoint Health Networks decided last November to be acquired by rival health insurer Anthem Inc, because:
- The united company could offer improved services to its customers
- The united company could offer better wages and opportunities for its workers
- The united company could offer better value to its shareholders
- They stood to make out like bandits
While we can discount reasons one and two, and can assume that number three was a major motivator, it's hard to overlook the impact of number four. According to a New York Times story ("A Win-Win Merger (For the Bosses, That Is)", 7/4/2004), "About a dozen executives will collect a total of $200 million or more if Anthem Inc.'s proposed $16.4 billion purchase of WellPoint goes through." The article points out that the CEO of WellPoint will make off with $37 million, plus a lucrative two-year eae-him-out stint as Chairman of the combined companies.
This kind of thing goes on all the time. And while press releases trumpet synergy and bold new visions, it is a mistake not to see the opportunity to line top exec's pockets as a sweetener. In addition to cash payout, execs can also cash in options and stock after the sale goes through. The $200 million at Anthem is almost a rounding error in a $16.4 billion deal, but it is hard not to see it as a reason for compromising the principles of the executives in handling stockholder money. (What makes its worse is those WellPoint executives have claimed that the totals savings for the merged company would be $250 million.)
According to the Times story, "Pension managers and state regulators in California have called to proposed payouts to executives at WellPoint Health Networks everything from 'egregious' to 'immoral.'" These groups are trying to get other stockholders top force the company to reduce the payouts before agreeing to the change. It won't be easy. The mutual fund and banking execs who control most of the voting stock are happy to have executive compensation high, for their companies might some time be acquired. One pay consultant explained what was called the "investment banker's rule of thumb":
On Wall Street, he said, it is not considered unusual for 2 or 4 cents of every dollar paid to buy a company to go to executives and employees who lose their jobs.
Anthem has pledged minimal layoffs, so assume that not much of that is going to employees. It's not like embezzling $200 million, but…
