'BLUE' PLAN OFFER HIKED WELLPOINT BOOSTS BID FOR CAREFIRST.

Byline: Evan Pondel Staff Writer

THOUSAND OAKS - WellPoint Health Networks Inc. said Tuesday that it will increase its offer to acquire CareFirst Inc. by $70 million to $1.37 billion in an all-cash deal.

In the latest salvo in the yearlong process, Thousand Oaks-based WellPoint is attempting to appeal to Maryland's insurance commissioner, Steven B. Larsen. CareFirst, an Owings Mills, Md.-based nonprofit BlueCross-BlueShield plan, needs Larsen to approve the deal before WellPoint can proceed with the transaction.

``WellPoint is repackaging something so that it's more palatable ... that's the way I see it,'' said Clifford Hewitt, analyst with Legg Mason in Maryland. ``This revised package is a less in-your-face insult to the public.''

The insult stems from a proposal that CareFirst would give top executives up to $119.6 million in bonuses as a result of WellPoint's prospective acquisition.

Under the revised plan, eight senior executives from CareFirst would enter two-year retention agreements with WellPoint at the closing of the deal. The new plan also stipulates that WellPoint will directly pay the CareFirst executives instead of the payments coming from any licensed insurance entity in Maryland, the District of Columbia or Delaware.

WellPoint began altering its bid for CareFirst after an independent auditing group hired by Maryland's insurance commissioner said the deal's overall price tag might be too low. The auditing group's report didn't identify a fair value for CareFirst, though it did pose several different scenarios in which CareFirst's value ranged between $1.35 billion and $2.25 billion.

``WellPoint's ability to alter the deal certainly moves the plan along,'' Hewitt said. ``The new amendment details a reality that the CareFirst executives will have an employment contract. And this certainly creates a more traditional deal.''

Those close to the agreement say investors will have a more definitive idea of the acquisition's viability by late February. Ken Ferber, a WellPoint spokesman, said there will be several pivotal milestones in the next several weeks.

``And this is just another step that allows us to enter the hearing which begins next Tuesday knowing we've addressed the primary concerns of regulators,'' Ferber said. ``This also shows everyone that we are listening and responding to the primary issues.''

If Larsen OKs the amended merger agreement, Maryland's state Legislature will meet to review his decision. Once the Legislature signs off on the new agreement, WellPoint has opted to grant CareFirst a 60-day period in which the company would waive any termination fee if CareFirst received a better offer. WellPoint would still retain its right to match any other proposal.

``This is all just part of the process,'' said Todd Richter, analyst with Banc of America Securities in New York. ``And I'd say the best-case scenario is that we have about a year until this deal is completed.''

CareFirst would be an important acquisition for WellPoint, expanding the company's portfolio of ``Blue'' plans. Of the myriad deals WellPoint has inked in the past two years, most involve BlueCross-BlueShield plans. With WellPoint's strategy poised to diversify the company's presence in the United States, Blue plans are attractive because of consumer recognition and longevity, said Michael Baker, analyst with Raymond James & Associates Inc.

``Blues generally have the strongest market share,'' he said. ``And I think WellPoint will continue to look at these Blue plans as attractive buys as they come up for sale.''

WellPoint shares declined 35 cents to close at $69.45 Tuesday on the New York Stock Exchange.