THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, August 14, 1996 TAG: 9608140310
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 94 lines
Trigon Blue Cross Blue Shield could raise as much as $320 million for acquisitions by converting to an investor-owned company later this year or in early 1997, the expansion-minded health insurer said in documents distributed to its policyholders this week.
Trigon, the largest health care provider in Virginia, also said it could distribute between 59 million and 62 million shares to policyholders in the conversion process. The new company would be named Trigon Healthcare Inc.
Trigon, based in Richmond, currently is owned by its 185,000 individual policyholders and 16,000 group policyholders.
The conversion process and stock offering would not change the coverage, premiums or terms of its policies, Trigon said.
The insurer's plan for converting to a shareholder-owned company still must be approved by its policyholders at a special meeting on Sept. 6 and by state regulators. Virginia's State Corporation Commission is scheduled to hold a public hearing Sept. 9 on whether the plan is fair and equitable to policyholders.
In a one-page letter included in documents distributed to policyholders, Virginia's insurance commissioner said the conversion has certain risks and urged policyholders to study the Trigon material before casting their votes.
Trigon has said in statements and regulatory filings that it needs publicly traded shares and added capital to expand its business beyond Virginia. Acquiring other insurers and health care providers is essential for its survival because the health care industry is rapidly consolidating, Trigon has said.
Under its existing structure, Trigon cannot issue stock and must rely on retained earnings or debt for funds to acquire other companies.
In the documents outlining its conversion plan, Trigon said its acquisition efforts would be focused on companies in the middle-Atlantic region and the Southeast.
But its conversion and expansion efforts would have certain risks, Trigon acknowledged. One is the potential loss of the Blue Cross and Blue Shield trade names as a result of the change in Trigon's ownership. Also, any appeal of a favorable decision by the State Corporation Commission could delay the conversion and expansion indefinitely, it said.
Trigon also said the Department of Labor's concern about its failure to disclose the discounts it received from health care providers has not been resolved. From 1990 through 1993, Trigon collected discounts for health care services but failed to disclose them or pass along the savings to its policyholders.
Last September, the Labor Department informed Trigon that it may have violated the Employee Retirement Income Security Act by not making known to self-funded employer groups the amounts of the discounts.
``No lawsuit has been filed by the Department of Labor, and the company intends to continue discussions with the Department of Labor about this matter,'' Trigon said in the documents distributed to policyholders.
In addition, Trigon disclosed that it has been sued by three employer groups over its failure to make the discounts known to policyholders.
The documents also list Trigon's payments to outside parties for legal, actuarial, and other work on the planned conversion and stock offering:
KPMG Peat Marwick, the accounting and consulting firm, has received $2.94 million so far and is likely to collect between $3.1 million and $3.5 million. Peat Marwick also is Trigon's independent auditing firm.
Merrill Lynch & Co., the brokerage and investment banking firm, received $1.2 million through June 30. Trigon said it expects Merrill Lynch to be the lead underwriter in the public offering of Trigon Healthcare stock.
Financial, actuarial, accounting and legal advisers to Virginia's Bureau of Insurance will receive about $6 million. Trigon said it agreed to pay for these services at the bureau's request.
Trigon's conversion plan also calls for a $175 million payment - half in cash and half in stock - to the commonwealth of Virginia. The payment, approved by the General Assembly earlier this year, is intended to reimburse the Virginia treasury for a state tax break that Trigon enjoyed for several years.
For the conversion plan to be accepted, it has to be approved by more than two-thirds of the policyholders voting on the plan. To be eligible to vote, the holder must have had a Trigon policy on June 30, 1996.
To receive shares of Trigon Healthcare during the conversion, the holder must have had a policy at year-end 1995.
Depending on the number of shares sold in the public offering, its policyholders would own between 67 percent and 83 percent of the company after the offering, Trigon estimated.
In an example of how much added capital it could raise, the company used an offering price of $11 a share. However, the number of shares to be offered and their price would be determined at the time of the offering, Trigon said.
Trigon also said it would apply to the New York Stock Exchange for a listing under the ticker symbol TGH. ILLUSTRATION: Graphics
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