Elevance Health, Inc. · NYSE:ELV
Elevance Health — Anthem — Merger or Acquisition (November 2003)
50 slides from Elevance Health's merger presentation, Nov 5, 2003
Slide 1: Investor Presentation
Mike Smith, Executive Vice President, Chief Financial Officer David Colby, Executive Vice President, Chief Financial Officer November 2003 SM Investor Presentation Filed by: Anthem, Inc. Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 of the Securities
Slide 2: Forward-looking statements
This presentation contains certain forward-looking information about Anthem, Inc. (“Anthem”), WellPoint Health Networks Inc. (“WellPoint”) and the combined company after completion of the transactions that are intended to be covered by the safe harbor for "forward-looking statements" provided by the
Slide 3: Additional Information and Where to Find It
This presentation may be deemed to be solicitation material in respect of the proposed merger of Anthem and WellPoint. In connection with the proposed transaction, a registration statement on Form S-4 will be filed with the SEC. SHAREHOLDERS OF ANTHEM AND STOCKHOLDERS OF WELLPOINT ARE ENCOURAGED TO
Slide 4: Agenda
WellPoint Profile Merger Summary Anthem Profile Agenda
Slide 5: Anthem Profile
Nevada Colorado Ohio Indiana Connecticut New Hampshire Maine Full range of healthcare and specialty products Fastest growing public healthcare company 11.8 million medical members Regional business model National capabilities BCBS licenses in 9 states #1 market share in 8 of 9 states Anthem BCBS Cov
Slide 6: Executing a Simple Strategy
Executing a Simple Strategy Customers Are First Regional Model Disciplined Focus Drivers to Success Grow Profitable Enrollment Reduce Administrative Costs Optimize the Cost of Healthcare, While Improving the Health of Our Members Provide Distinctive Service Strong Cash Management
Slide 7: Profitable Enrollment Growth
8 7 11 2000 2001 2002 2003(E) +7-8% 6% 1% 17% Sm. Group Gov’t Indiv. Nat’l 2% 12% Lg. Group Profitable Enrollment Growth Medical Membership (millions) 3Q03 = 11.8 million 3Q03 vs 3Q02 Growth by Customer Segment
Slide 8: National Accounts: Gaining Strength in the Marketplace
Strong retention of existing accounts 24 new account wins for 2004 Blue Cross Blue Shield Brand Access to BlueCard networks nationwide Demonstrated evidence of provider discounts (ClaimsQuest) Interactive Realtime Information System (IRIS) Dedicated Business Unit Model National Accounts Gaining Stre
Slide 9: Specialty Product Opportunities
Cross Selling to Existing Customers Specialty membership as of September 30, 2003 Specialty Product Opportunities Membership (mm) Pharmacy 5.3 Dental 2.4 Life 0.9 Behavioral Health 3.2 Vision 0.4 New Specialty Products Total Benefit Solutions for Customers
Slide 10: Administrative Expense Discipline
24.2% 21.2% 19.6% 19.3% 1999 2000 2001 2002 Systems consolidation Shared service platform Investments in technology Process improvements 1998 26.3% Administrative Expense Discipline Strategies For Improvement 3Q03 = 18.7%
Slide 11: Optimize the Cost of Care: Disease Management Programs
Asthma Diabetes Coronary disease Heart failure High risk pregnancy Renal disease Diabetes Coronary Disease General Population Program Members Quality Care Through Physician Collaboration PMPM Cost Savings Optimize the Cost of Care Disease Management Programs
Slide 12: Strong Cash Management
1. Invest in businesses 2. Acquisitions 3. Share repurchase 4. Debt reduction Net Income Cash Flow ($ in millions) 2000 2001 2002 $226 $685 $342 $655 $549 $991 Priorities for Cash Flow Operating Cash Flow Strong Cash Management
Slide 13: 15%+ Earnings Growth Model
15% + Earnings Growth Model Long Term Earnings Growth Profitable Membership Growth Continuous Administrative Expense Ratio Improvement Stable Benefit Expense Ratio Enrollment growth in every region Expand market share Specialty penetration Systems consolidation Contain costs in non-customer touch po
Slide 14: Strong Financial Momentum
($ in billions) $5.30-$5.35 $4.51 $3.30 $2.18 2001 2002 2003(E) 2000 $10.1 $13.0 ~$16.5 $8.5 2001 2002 2003(E) 2000 Operating Revenue Diluted EPS Strong Financial Momentum 3Q03 = $1.38 3Q03 = $4.2 billion
Slide 15: Agenda
Anthem Profile Merger Summary WellPoint Profile Agenda This presentation contains non-GAAP financial measures, as defined in the rules of the Securities and Exchange Commission. As required by the rules, a reconciliation of those measures to the most directly comparable GAAP measures is available at
Slide 16: WellPoint Profile
Second largest health plan in U.S. Broad range of medical and specialty products Organized by customer segment with a diverse customer base Regional geographic focus One Company, multiple brands WellPoint Profile Non-Blue Brands
Slide 17: Choice = Value
CHOICE = VALUE Pharmacy Dental Behavioral Health Life/Long Term Care Disability Medical Management Network Access Broad Product Choice
Slide 18: Organized by Customer Segment
Individual 1 Senior 1 Small Group 2 – 50 Key Accounts 51 – 250 Major Accounts 251 – 2,000 Special Accounts 2,001+ Public Entities* varies State Sponsored Programs** varies * Employees of schools, municipalities, Federal Employees Program ** Beneficiaries of Medicaid, State Children Health Insurance
Slide 19: Diverse Customer Base
* Includes 1.4 million network access members Diverse Customer Base September 30, 2003 Enrollment 461,000 Seniors 1,471,000 Individual 1,396,000 Small Group 4,132,000 Large Group Insured 5,020,000 Large Group ASO* 713,000 Other State Sponsored Programs 840,000 Medi-Cal
Slide 20: Regional Concentration
Health care is locally delivered and locally consumed Better network leverage Greater actuarial precision More efficient marketing/operations UNICARE regions HealthLink states (also includes Missouri, Indiana & Illinois) Blue Cross license service areas Regional Concentration
Slide 21: Membership Growth
10,528 2,797 4,485 6,638 6,892 7,515 8,201 (in thousands) 13,223 14,033 *Reflects growth from September 30, 2002 Membership Growth California Membership Growth: 17% 7% 15% 8% 27% 6% 7% Total Medical Membership 11% 3%*
Slide 22: Big Plans Will Get Larger
Source: Bear Stearns, Centers for Medicare & Medicaid Services, Office of Actuary, U.S. Census Bureau, and SEC filings of publicly traded companies Total Insured 223.7 Million Top 10 = 61.1 Million Top 10 = 100.4 Million Total Insured 245.4 Million * Top 10 Health Plans as of 6/30/03: UNH, WLP, AET,
Slide 23: Health plans and networks list
Alameda Alliance for Health Care 1 st Health Plan Chinese Community Health Plan Community Health Group Community Health Plan Contra Costa Health Plan Health Plan of San Joaquin Inland Empire Health Plan Interplan Corp One Health Plan of CA Primecare Medical Network ProMed Health Care Administrators
Slide 24: Uninsured Opportunity
Source: NIHCM Foundation, 2002, RWJF-sponsored project. Based on 2001 data. Uninsured Opportunity 14 million 9 million 18 million Eligible for public programs but not enrolled Earn <100% FPL Low income, not eligible for public programs Earn 100-199% FPL Moderate to high income 11.4 million earn >300
Slide 25: Ethnic Outreach Programs
Agent support Community programs Media relations Partnership activities Example: HealthyCheck Program in California Experience higher incidence of preventable and manageable chronic diseases Limited access to health care services Affordable and convenient preventive health screenings Partner with ho
Slide 26: Targeted Medical Management
20% 24% 68% 7% 23% WellPoint Membership Asthma Congestive Heart Failure ESRD Diabetes Depression Oncology High risk pregnancy Etc. 80% Members with chronic conditions WellPoint Membership WellPoint Medical Costs 8% 70% Targeted Medical Management
Slide 27: Cost Variations
CA Hospital A $25,100 $27,000 $ 28,700 CA Hospital B $ 2,200 $ 1,700 $ 3,000 GA Hospital A $11,400 $12,500 $ 21,100 GA Hospital B $ 2,800 $ 2,800 $ 8,700 MO Hospital A $26,200 $18,200 $119,400 MO Hospital B $ 3,100 $ 9,600 $ 24,900 TX Hospital A $37,700 $18,600 $ 41,000 TX Hospital B $14,700 $ 2,100
Slide 28: Physician Centric Health Coaching Model
Constraints on physician time and resources do not allow for the in-depth counseling and assistance necessary for the effective treatment of chronic illnesses RN Directed RN gives didactic telephonic education without assessing member motivation or underlying barriers to change Multi Disciplinary He
Slide 29: WellPoint Pharmacy Management
Fourth largest PBM with approximately 31 million members Offers full spectrum of PBM services Provide innovative programs to manage drug trend Clinical programs are outcomes-focused and patient-centric WellPoint Pharmacy Management Clinical / Medical Management Clinical Business Plan Intervention Pr
Slide 30: Other Specialty Products
PPO, DHMO & FFS Basic & supplemental group term, dependent coverage, AD&D Group STD & LTD Full range of Behavioral Health services, including EAP plans Network management, bill review, medical management and case management, all on non-risk basis Dental Life Disability Behavioral Health WC MCS Other
Slide 31: Specialty Products Contribute to WellPoint's Profitability
87% 13% **Represents growth in segment net income for the 9 months ended September 30, 2003 versus the comparable prior-year period *Excluding corporate and other segment Nine months ended September 30, 2003 88% 12% Nine months ended September 30, 2002 Health Care Segment 35% Specialty Segment 56% H
Slide 32: Leveraging Technology to Improve Margins
(%) * General and administrative expense ratio is calculated as a percentage of premium revenue and management services and other revenue combined G & A Expense Ratio Trends* Leveraging Technology to Improve Margins 330 bp improvement
Slide 33: WLP Financial Highlights
$9.2 $7.5 $4.0 $5.6 $6.5 $17.3 $12.4 $14.8 $ *As of December 31, 2002. CAGR = (FV/PV) 1/n –1, where FV is the future value, PV is the present value, and n is the number of years. WLP Financial Highlights Total Revenue (in billions) CAGR = 28%*
Slide 34: WellPoint income statement data
$297.2 $198.5 $224.9 $263.0 (a) Before extraordinary items and cumulative effect of accounting change, if applicable (b) 1997 income from continuing operations of $229.4 million excludes: i) $9.0 million of nonrecurring costs, net of tax, related to write-down of the Company’s dental practice manage
Slide 35: Agenda
Anthem Profile WellPoint Profile Merger Summary Agenda
Slide 36: Transaction Summary
1 Based on Anthem closing price as of October 24, 2003 $23.80 cash and 1 ATH share $101.06 per WLP share 76% stock, 24% cash Mid-2004 ATH and WLP shareholders DOIs, CA Dept. of Managed Health Care and other regulators BCBSA Hart-Scott-Rodino 47% Anthem, 53% WellPoint Transaction Summary Consideratio
Slide 37: Transaction Summary: Governance
WellPoint, Inc. Indiana 60% Anthem, 40% WellPoint Leonard Schaeffer Larry Glasscock David Colby Mike Smith, Alice Rosenblatt Name: Headquarters: Board Representation: Chairman: President and CEO: Chief Financial Officer: Co-Heads of Integration: Transaction Summary
Slide 38: Geographic Concentration
Anthem WellPoint UNICARE and HealthLink >100K members CO CT NH MA GA MO CA WI ME KY IN OH NV VA Geographic Concentration TX IL
Slide 39: Geographic Diversification
(Excludes BlueCard Host Members for WellPoint) Colorado 3% Wisconsin 2% New Hampshire 2% Maine 2% Nevada 1% California 26% Virginia 10% Ohio 10% Georgia 8% Indiana 7% Missouri 6% Connecticut 6% Kentucky 5% Non-Blue Branded 12% Combined Membership at 9/30/2003 = 26 million Geographic Diversification
Slide 40: Frequently Asked Questions
Frequently Asked Questions Why now? Why not structure as merger of equals vs. paying a premium to WLP shareholders? What are the returns for Anthem shareholders? Is this a defensive move because you are worried about something? What are the benefits of this merger?
Slide 41: Why Now?
2000 2001 2002 2003 Demutualization and IPO Trigon Acquisition ATH/WLP Merger announcement BCBSGA acquisition CBZ Acquisition 2000 2001 2002 2003 RIT Acquisition CareFirst acquisition activities BCBSME Acquisition BCBS Kansas acquisition activities Why Now? Many expected the merger in the future, wh
Slide 42: Why Not Structure as Merger of Equals?
Indiana is an attractive state of domicile Mergers of equals have challenging track records Clear leadership and governance is necessary for successful execution Valuation is reasonable relative to comparable transactions Why Not Structure As Merger of Equals vs. Paying a Premium to WLP Shareholders
Slide 43: Why Not Structure as Merger of Equals? Premiums
Why Not Structure As Merger of Equals vs. Paying a Premium to WLP Shareholders? Acquiror Target Tribune Co. Times Mirror Co. Starwood Hotels & Resorts ITT Corp. Valero Energy Ultramar Diamond Dominion Resources Consolidated Natural Gas First Energy GPU Walt Disney Capital Cities Undisturbed Premium
Slide 44: What Are the Returns for ATH Shareholders?
What Are the Returns for ATH Shareholders? Accretive in 2004 excluding refinancing costs 4-6% accretion in 2005 15% EPS Growth 15% EPS Growth
Slide 45: Is This a Defensive Move?
The underwriting cycle is becoming a myth Generally self-inflicted cycles in the past Track records of underwriting discipline Industry consolidation since mid-90’s mitigates risk Fewer, more disciplined Blues Is This a Defensive Move Because You Are Worried About Something? “Same Store” Membership
Slide 46: Disappearance of the Underwriting Cycle
* Operating income less investment income divided by premium revenue Source: BCBSA, 2002 -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 WellPoint (1) Underwriting Results as % of Revenue* ’6
Slide 47: Benefits of This Merger: Growth Opportunities
Target individual products in ATH markets “Young invincibles” Early retirees Other uninsured Utilize ATH experience with national accounts ATH national accounts same store growth 14% in 2002 16% YTD 9/2003 Multi-state employers focusing more on medical costs in addition to administration expenses En
Slide 48: Benefits of This Merger: Growth Opportunities
Increase penetration of PBM services Increased size enhances value proposition WLP PBM experienced with carve-out and external sales Cross-sell other specialty product sales to existing members Dental, Life, Disability, Behavioral Health, Vision Utilize best practices in medical management and contr
Slide 49: Benefits of This Merger: Operating Synergies
Recognize at least $250 million in pre-tax synergies Positioned to implement over 18 - 24 months: $50 million in 2004, $175 million in 2005, and $250 million in 2006 Synergies represent approximately 4% to 5% of combined administrative expenses - consistent with prior transactions What Are the Benef
Slide 50: Anthem WellPoint
a WELLPOINT. Anthem GH \usenis Obie