Skip Maine state header navigation
 |
| Home | Contact Us | Careers | Calendar |
|
Maine.gov
> PFR Home
> Insurance Regulation
> Hearing Decision Index
> Document 630 : INS 99-14 : Hearing Decision
CERTIFICATE OF SERVICE The undersigned hereby certifies that on March 28, 2000, a copy of Applicant’s Exhibit C-37, Pre-filed Testimony of Keith Vangeison, Confidential Version was served by United States mail, first class postage prepaid, or, where indicated, by hand delivery, or e-mail, on each of the persons listed below. James B. Zimpritch Pierce Atwood One Monument Square Portland, Maine 04101 e-mail: jzimpritch@pierceatwood.com Judith Chamberlain, Esq. State of Maine Department of the Attorney General 6 State House Station Augusta, Maine 04333-0006 e-mail: judy.chamberlain@state.me.us (Bureau of Insurance) William H. Laubenstein, Esq. State of Maine Department of the Attorney General 6 State House Station Augusta, Maine 04333-0006 e-mail: bill.laubenstein@state.me.us (Office of the Attorney General) Gregory A. Brodek, Esq. Duane, Morris & Heckscher, LLP 15 Columbia Street, 4th Floor Bangor, Maine 04401-6355 e-mail: gabrodek@duanemorris.com (Maine Health Alliance) Joseph P. Ditre, Esq. Consumer Health Law Program One Weston Court, Level One P.O. Box 2490 Augusta, Maine 04338-2490 e-mail: jditre@mainecahc.org (Consumers for Affordable Health Care Foundation/Coalition) Michele M. Garvin, Esq. Ropes & Gray One International Place Boston, Massachusetts 02110-2624 e-mail: Mgarvin@Ropesgray.com (Central Maine Healthcare Corporation; Central Maine Partners Health Plan) Robert I. Goldman Maine Council of Senior Citizens 27 Bowery Beach Road Cape Elizabeth, Maine 04107 e-mail: Rgoldma1@maine.rr.com (Maine Council of Senior Citizens) Bonnie Post Executive Director of the Maine Ambulatory Care Coalition P.O. Box 390 Manchester, Maine 04351 e-mail: bdpmacc@mint.net (Sacopee Valley Health center, Regional Medical center at Lubec, Eastport Health Care, Inc., and the Maine Ambulatory Care Coalition) John Dieffenbacher-Krall Executive Director Maine People’s Alliance 192 State Street Portland, Maine 04101 e-mail: MPA@gwi.net (Maine People’s Alliance) Gordon H. Smith, Esq. Maine Medical Association 30 Association Drive P.O. Box 190 Manchester, Maine 04351 e-mail: gsmith@ctel.net (Maine Medical Association)
Donald E. Quigley, Esq. General Counsel 465 Congress Street, Suite 600 Portland, Maine 04101-3537 e-mail: quigld@mail.mmc.org (Maine Medical center) Sandra L. Parker, Esq. Attorney for MHA, Inc. 150 Capitol Street Augusta, Maine 04330 e-mail: sparker@themha.org (MHA, Inc.)
Kellie P. Miller, M.S. Executive Director Maine Osteopathic Association 693 Western Avenue Manchester, Maine 04351 e-mail: meosteo@mint.net (Maine Osteopathic Association) John P. Doyle, Esq. Preti, Flaherty, Beliveau & Pachios, LLC One City center PO Box 9546 Portland, Maine 04112-9546 (Maine Hospital Association)
Michel LaFond Sulloway and Hollis, P.L.L.C. 9 Capitol Street Box 1256 Concord, New Hampshire 03302-1256
Applicants’ Exhibit 42
STATE OF MAINE DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION BUREAU OF INSURANCE
March 28, 2000
Q. Please state your name and occupation. A. My name is Stephen M. DiBenedetto, I am a Managing Director at Salomon Smith Barney Inc. ("Salomon Smith Barney"). Q. What services had Salomon Smith Barney provided to BlueCross BlueShield of Maine in connection with its proposed conversion ? A. Salomon Smith Barney was retained by BlueCross BlueShield of Maine ("BCBSME" or the "Company") in January 1999 to provide, among other things, the following financial advisory services:
Q. Please provide a short overview of Salomon Smith Barney’s experience and qualifications for this engagement. A. Salomon Smith Barney’s recent experience and expertise in the field of financial advisory services to firms in the health care industry was summarized in materials provided to BCBSME and its Board shortly before its engagement. From January 1995 through November 1998, Salomon Smith Barney served as a financial advisor for 123 merger and acquisition transactions in the medical services industry (including health insurers and managed care companies), collectively involving approximately $58 billion in consideration, and during the same period, Salomon Smith Barney underwrote approximately 56 equity offerings in this industry with combined proceeds of $5.9 billion. With particular reference to managed care companies, from January 1995 through November 1998, Salomon Smith Barney acted as a managing underwriter in approximately 14 managed care company financings involving aggregate proceeds of $3.4 billion, and was involved in 22 mergers or acquisitions transactions with an aggregate value of approximately $9.76 billion. A short description of the backgrounds of the persons working on the engagement for BCBSME appears as Applicants’ Exhibit 43. Q. Please describe Salomon Smith Barney’s initial involvement in the Company’s efforts to seek an affiliation partner. A. By letters dated January 27, 1999, at the Company’s direction, Salomon Smith Barney solicited written statements of interest from three companies that had then to-date expressed a strong interest in making a proposal to BCBSME. The letter sent to Anthem appears as Applicants’ Exhibit 44. Similar letters were sent to other companies. Each company was requested to provide a statement of its intentions to pursue a transaction with BCBSME, preliminary non-binding valuations of the Company (if appropriate), a description of the structure of the transaction, the form of consideration to be furnished (if any), sources of financing, a preliminary description of how the organization would function post-transaction, including a discussion of the allocation of responsibilities and employment within the State of Maine and product offerings, and material conditions. The letter requested a response by February 16, 1999. Salomon Smith Barney then reviewed with the Company the responses to the January 27, 1999 letter, and provided financial advice to the Company concerning the proposals received. Salomon Smith Barney also assisted the Company in the preparation of a confidential summary of the Company for presentation to prospective affiliation partners. This confidential memorandum appears as Applicants’ Exhibit C-46. Q. How did the Company respond to the indications of interest received in response to the January 27, 1999 letter ? A. On March 3, 1999, at the direction of the Company, Salomon Smith Barney solicited written firm offers from companies that had responded to the January 27, 1999. The letter sent to Anthem appears as Applicants’ Exhibit 45. Similar letters were sent to other companies. The letter requested final proposals by April 21, 1999. This period was later extended to April 30, 1999. Q. Did all of the companies respond to the March 3, 1999 letter requesting written firm offers ? A. One of the companies that had submitted an indication of interest in response to the January 27, 1999 letter declined to submit a written firm offer. Another bidder which had not submitted an indication of interest requested the opportunity to make a proposal to the Board, and the Board extended the time for its consideration of proposals in order to allow this bidder to formulate and submit a proposal. Q. What services did Salomon Smith Barney provide to the Company in connection with the proposals? A. Salomon Smith Barney assisted the Company in responding to due diligence requests by the bidders. Salomon Smith Barney also assisted the Company in conducting "reverse due diligence" of certain bidders. In addition to written presentations and proposals, representatives of the bidders met with BCBSME management and its Board of Directors on May 18 and 19, 1999. Representatives of Salomon Smith Barney participated in executive session Board meetings following presentations by the bidders and reviewed with the Board each bidder’s proposal and financial condition. At the Board meeting on May 18, 1999, Salomon Smith Barney presented the Board with a summary of the proposals that had been received. The presentation appears as Applicants’ Exhibit C-47. Salomon Smith Barney also provided the Board with an estimated range of values for the Company based on various valuation methodologies. Q. Following the presentations made at BCBSME’s May 1999 board meeting, what additional services did Salomon Smith Barney provide to the Company ? A. In June 1999, the Board of BCBSME instructed its management to attempt to negotiate a definitive agreement with one of the bidders, Anthem Insurance Companies ("Anthem"). Salomon Smith Barney reviewed the final negotiated agreement – the Asset Purchase Agreement of July 13, 1999 – and issued to the BCBSME Board an opinion as to the fairness, from a financial point of view, to the Company of the consideration to be paid to the Company pursuant this Agreement. Applicants’ Exhibit 49. In connection with its opinion, at the BCBSME’s Board meeting of July 13, 1999, Salomon Smith Barney provided a financial presentation to the BCBSME Board. This presentation appears as Applicants’ Exhibit C-48. Q. Please outline the major points of Salomon Smith Barney’s financial presentation to BCBSME’s Board on July 13, 1999. A. The presentation summarized key transaction terms, and the process leading up to the Asset Purchase Agreement between the Company and Anthem. The presentation also provided an overview of Anthem, and a financial analysis of BCBSME based on various valuation methodologies. This financial analysis was based on financial information provided by the Company, including balance sheets and income statements, both historical and projected, interviews with management, a review of data concerning the market capitalization and related financial parameters of comparable publicly traded companies, and public information concerning merger and acquisition transactions involving health insurance companies. The financial presentation noted that the purchase price reflected in the Asset Purchase Agreement was within the range of implied valuations for the Company derived from an analysis of public market valuations, private market valuations, and from a discounted cash flow analysis. Q. How do the Company’s financial projections used in Salomon Smith Barney’s financial presentation in July 1999 compare to the actual performance of the Company in the interim ? A. Salomon Smith Barney has been advised by BCBSME that BCBSME’s financial performance through year end 1999 was substantially different from the projections that BCBSME provided to Salomon Smith Barney for purposes of its financial analyses. The financial projections for the Company upon which Salomon Smith Barney’s financial analyses were based are included on pp. 10-13 of the financial presentation. The Company’s current (February 2000) projections, which include draft year end 1999 financial statements, appear as Applicants’ Exhibit C-53. In summary, the differences comprise a reduction in net worth and reserves versus a previously projected increase, a substantial year end loss versus a previously projected profit, and an increase in enrollment and revenues in comparison to previous projections. Salomon Smith Barney has also been advised of certain changes in the health insurance market in Maine, described in more detail in BCBSME’s Second Supplemental Response To Attorney General’s Third Discovery Request, ¶‘s 3, 4 and 5. The following table compares certain information provided to Salomon Smith Barney by the Company upon which Salomon Smith Barney’s financial presentation was based with the Company’s draft year end financial statements and projections as of February 2000:
Q. How have the stock prices of comparable small health insurers identified in Salomon Smith Barney’s financial presentation to the Board changed in the intervening months ? A. From June 30, 1999 through December 31, 1999, there has been a reduction in the stock prices of comparable small health insurers. Salomon Smith Barney’s financial presentation identified and analyzed various financial parameters from these companies in estimating the implied value of BCBSME using a market capitalization approach. The comparable companies are listed on p. 17 of the financial presentation. In comparison to their stock prices as of June 30, 1999, on December 31, 1999, the median stock and average price of these companies dropped by approximately 30%. The drop in public market valuations is comparable to that reported by KPMG in its report to the Maine Department of Attorney General. Q. Has Salomon Smith Barney been retained by the Company to provide an updated financial analysis ? A. No. Salomon Smith Barney has not been retained to provide and has not developed an updated range of valuations for BCBSME or an updated opinion as to the fairness, from a financial point of view, to the Company of the consideration to be paid to the Company pursuant the Asset Purchase Agreement. Q. Understanding that Salomon Smith Barney has not developed an updated range of valuations, what would you anticipate to be the impact of these intervening developments on the range ? A. In light of the interim financial performance of the Company and health insurance equity market developments described above, and given the reliance of Salomon Smith Barney’s opinion on, among other things, the then-current financial condition of the Company, its most recent and expected near-term financial performance, and on financial ratios associated with the market capitalization of comparably sized health insurance firms, it would be reasonable to anticipate that the intervening developments summarized above would result in a reduction in the estimated range of valuations implied for BCBSME from that reflected in Salomon Smith Barney’s financial presentation. Date: March 28, 2000
Last Updated: February 24, 2010 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Copyright © 2006 All rights reserved. |