Bounty on Braly? $1.4 billion

September 4, 2012

Investors who called strongly for the head of WellPoint Inc. CEO Angela Braly got what they wanted last week. And what did they pay in return? $1.4 billion.

That’s how much investors bid up WellPoint's total shares outstanding the day after Braly resigned from her positions as chairman and CEO of the Indianapolis-based health insurer. WellPoint's shares rose 7.7 percent on Aug. 29, increasing its total market value $1.4 billion. Several analysts also upgraded their ratings of the company.

Panos Mourdoukoutas, an economics professor at Long Island University, cited Braly as an example of a CEO who is at best “worthless” for shareholders—and at worst destroys value.

“Executives who are founders of successful companies, like Steve Jobs and Bill Gates—and the executive engineers and marketers, who shared their vision—are worth hundreds of billions of dollars, as evidenced by the market capitalization of Apple and Microsoft,” Mourdoukoutas wrote in his blog at Forbes.com. “Executives who are career bureaucrats working for companies others created and add very little value to the organization are worthless. Worst, they may destroy rather than create value for corporate owners.”

Still, does the CEO really make that much of a difference? While WellPoint is being run on an interim basis by General Counsel John Cannon, it still will have the same strengths and weaknesses: It will be a successful company in the commercial health insurance markets trying to make the turn to government-sponsored markets, where growth is most likely to occur.

At least some analysts seem to think Braly’s exit will be meaningful. Sanford C. Bernstein analyst Ana Gupte raised her rating from “market perform” to "outperform,” and boosted her predicted price for the stock $1, to $73 per share. She said earnings misses and pricing mistakes under Braly had kept some investors on the sidelines—until now.

“We see operational turnaround as much more likely with a new CEO under the auspices of a board that has been made accountable, particularly with regard to the systemic issues on pricing and underwriting that the company has experienced across all segments of commercial, Medicare and Medicaid,” Gupte wrote in an Aug. 29 report to investors.

JPMorgan Chase analyst Justin Lake boosted his price outlook from $60 per share to $65. Lake attributed the price bump to “the board’s clear willingness to act in the best interest of shareholders.”

WellPoint’s stock price has lost about half the gains it enjoyed after Braly’s departure, and the company’s market value is now about $700 million higher than it was before her resignation.


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