COUNTEROFFERS WEIGHED WELLPOINT MAKES $680 MILLION BID FOR CERULEAN.

Byline: Chris Sieroty Staff Writer

THOUSAND OAKS - Shares of WellPoint Health Networks Inc. fell 7.2 percent Monday after the managed care company announced it had made a counteroffer for Georgia's Blue Cross/Blue Shield operator Cerulean Companies Inc.

Trigon Healthcare Inc., based in Richmond, Va., disclosed Sunday that it had offered $675 million for Cerulean, topping the previous $500 million cash and stock offer from WellPoint.

The Thousand Oaks-based company had planned to close the acquisition by the end of the year. WellPoint, which owns Blue Cross of California, made a counteroffer of $680 million Sunday.

``We are in the process of putting together a formal written response to Trigon's proposal,'' said WellPoint spokesman John Cygul.

Trigon HealthCare shares closed Monday at $73.3125, down $4.9375, or 6.31 percent, on volume of 764,500 shares traded. Shares of WellPoint lost $7.25 to close at $93.50 on heavy volume of 1,606,000 shares traded.

Both companies are listed on the New York Stock Exchange.

``We believe we are the best partner for Cerulean because of our leadership position in the industry, the fact that we have existing operations in Georgia and that we've had extensive merger preparations over more than two years,'' Cygul said.

Analysts were caught off guard by the Trigon offer.

``This offer comes as a surprise to us, and we believe to WellPoint as well,'' said Larry Marsh, an analyst with Lehman Brothers. ``We believe that WellPoint felt the merger was theirs since the original announcement in July 1998.''

Marsh explained that in the original offer by WellPoint, which was accepted by Cerulean, breakup fees of $10 million are required to be paid by either party upon the cancellation of the merger.

``With that, we would argue that the WellPoint counter offer is actually some $15 million above the Trigon offer due to the fact that Cerulean would not have to pay breakup fees if the revised WellPoint offer were accepted,'' he said.

WellPoint agreed to purchase Atlanta-based Cerulean more than two years ago, but the transaction was delayed by a lawsuit that claimed 70,000 shareholders should be classified as convertible shareholders.

Last month, WellPoint agreed to pay $5 million to settle the suit. On Oct. 10, Hugh J. Steadman, Cerulean's senior vice president, said 99.07 percent of shareholders who voted approved the $500 million merger.

Charlie Harman, a Cerulean spokesman, said no decision had been made on which offer to accept because the company had not fully considered the $680 million offer from WellPoint.

``Cerulean is a well-regarded company and has about 22 percent of a fast-growing market,'' said Tom Snead, Trigon's chairman and chief executive officer, in a conference call Monday. ``Georgia has a strong economy with a growing demand for our products.''

The combination of Trigon and Cerulean would bring together two of the Southeast's largest Blue Cross/Blue Shield companies and create a regional health care company with about 3.8 million members.

The transaction would be subject to the approval of Cerulean's board and shareholders. Georgia's insurance commissioner would also have to approve the the deal.

Snead said he hoped to close the deal in the next six months.

If approved, the company would have nearly $5 billion in revenues and approximately 7,000 employees.

WellPoint Health Networks serves more than 7.7 million medical and more than 38 million specialty members nationally through Blue Cross of California and Unicare throughout other parts of the country, including 75,000 in Georgia.