Braly’s departure occurred sooner than many expected

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Angela Braly's resignation Tuesday as CEO and chairwoman of WellPoint Inc. wasn't totally unexpected, but the timing took some industry observers by surprise.

Even as Braly came under heavy criticism in recent weeks from big stockholders, some analysts predicted the company would wait until the Indianapolis-based insurer completed its $4.9 billion acquisition of Amerigroup Corp. later this year before trying to replace the leader of its company.

Erik Gordon, a University of Michigan business professor who follows the health-care industry, predicted in mid-August that Braly had "bought herself some time because it would be unusual to remove a CEO in the middle of a major acquisition."

But with Braly facing searing attacks, WellPoint concluded it couldn't wait, analysts say. John Cannon, the company’s executive vice president and general counsel, will serve as interim CEO while WellPoint searches for Braly's replacement, the company said Tuesday night in a prepared statement announcing Braly's resignation. Cannon said he doesn’t want to be a candidate for the permanent job, according to the statement.

"We thought the board would provide Ms. Braly with some more time to right this ship, but [we] view the executive change as a step in the right direction," BMO Capital Markets analyst Dave Shove said Tuesday night in a report to clients.

During her five-year tenure, Braly, 51, made herself a foe of the national health care overhaul and, more recently, WellPoint shareholders after the company missed earnings estimates and cut its forecast twice in the past four months.

"Our board continues to believe that time will prove the wisdom of potentially transformative actions taken under Angela's leadership," Jackie Ward, WellPoint's lead director, said in a prepared statement. "But now is the right time for a leadership change. We believe the remaining executive team is dynamic and strong, with great potential to drive WellPoint’s future success.”

Ward will serve as non-executive chairwoman.

The WellPoint board recently supported Braly in two public statements in the face of calls for her ouster by Royal Capital Management LLC and Orbimed Advisors LLC, among other shareholders. Braly has been under fire since the company cut its full-year forecast last month after earnings missed analyst estimates for the second time in three quarters.

Analysts have complained that Minnesota-based UnitedHealth Group Inc., WellPoint's top rival, has badly outperformed the Indianapolis company since the 2010 passage of the federal health care reform act that will transform the health insurance business.

“I have spoken with our board and we have agreed this is the right action for WellPoint at this time,” Braly said in a memo to company employees. “The board and I feel, though, that the company will benefit from getting a fresh perspective on ways we can improve execution across the company.”

Braly in recent months has been building up areas of WellPoint where UnitedHealth already excels. That includes the business of serving Medicare and Medicaid recipients, a segment that’s expected to grow rapidly in the coming years, and programs keeping patients healthier and in need of less health care.

Royal Management Group LLC called for Braly’s ouster, Bloomberg reported Aug. 23, following similar public criticism from shareholders Orbimed Advisors LLC, an investment fund, and hedge fund Omega Advisors Inc. Robert Medway, a partner in Royal Capital Management, said WellPoint will benefit from Braly’s departure.

“This is a pleasant surprise that boards of directors sometimes do their jobs,” Medway said Tuesday after the announcement. “Now we look forward to seeing who takes the helm and creates some value here.”

The company’s shares gained 4.1 percent, to $59.75 each, in extended evening trading after declining 1.3 percent on the day during market hours.

WellPoint traded at a 2-percent premium to an Standard & Poor's 500 index of the top six health insurers when Braly took over as chairman on March 1, 2010. As of Monday, it changed hands at a 44-percent discount, suggesting investors’ waning confidence. The company has lost about $8 billion of its value during that time, according to data compiled by Bloomberg.

Braly was one of 20 women running Fortune 500 companies. She was one of the highest paid executives in the state and among the country's highest paid female CEOS. She received $13.3 million in total compensation in 2011, down slightly from the previous year.

Braly’s resignation came after nearly two weeks of meetings between WellPoint’s board and top shareholders of the company.

Even before Braly’s resignation, investors were suggesting James G. Carlson, the chief of Amerigroup Corp., and David B. Snow Jr., the former chief of Medco Health Solutions Inc., as CEO candidates, Jason Gurda, a Leerink Swann & Co. analyst in New York, said.

WellPoint is buying Amerigroup, a rival insurer, for $4.9 billion. Medco was acquired for $29.1 billion in April by Express Scripts Holding Co., a fellow drug-benefits manager.

Other names raised by investors include WellPoint Chief Financial Officer Wayne Deveydt; Gail Boudreaux, the head of the health plan division at UnitedHealth Group Inc.; and Kenneth Goulet, WellPoint’s executive vice president, said Thomas Carroll, a Stifel Nicolaus & Co. analyst in Baltimore.

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