WellPoint Shares Rise as CEO Succession Talk Heats Up

Health insurer WellPoint Inc should have its pick of several talented industry executives to replace Chief Executive Angela Braly, whose abrupt exit from the company was announced late on Tuesday, investors and analysts said.

Shares in the second largest U.S. health insurer rose nearly 8 percent on Wednesday as investors said they were pleased that new leadership would have the chance to improve the company's financial performance.

Some pointed to UnitedHealth Group executive Gail Boudreaux as an excellent choice to replace Braly. Other potential CEO candidates that repeatedly came up in discussions with analysts and shareholders included Amerigroup Corp CEO Jim Carlson, former Medco Health Solutions CEO David Snow and former Aetna CEO Ron Williams.

WellPoint, which appointed its general counsel John Cannon as interim CEO, declined to comment on potential successors to Braly. Williams declined to comment on the speculation or the situation at WellPoint. The other potential candidates cited were not available for comment.

However, a source familiar with the company's thinking who asked not to be named said Snow was highly unlikely to be considered as a viable candidate for the job.

Braly's departure, while sudden, was not altogether unexpected. Some WellPoint shareholders had written open letters to the board calling for a change as their disappointment over the company's performance grew.

"For whatever reason the previous CEO, while a very intelligent, very capable executive, could not create a culture of accountability and excellence where people met their numbers and did what they said they were going to do," said Robert Medway, managing partner at Royal Capital Management, who wrote one of the shareholder letters.

Late last month, WellPoint cut its full-year profit forecast on rising medical costs and fierce competition that caused a decline in its membership.

Medway, whose firm holds about 837,800 WellPoint shares, cited UnitedHealth's Boudreaux as a strong potential successor.

"Around 2008, United Healthcare was the (industry) bad boy that kept missing numbers and Gail Boudreaux came in to right the ship," Medway said. "She fixed United and now United is the industry darling."


Other potential candidates each have long, successful track records, but may also face complications that could keep them from taking the WellPoint helm.

For example, Carlson is in the process of selling his company to WellPoint for nearly $4.5 billion.

"He's leading the business that they've proposed an acquisition of and it would be very delicate for them to reach across the aisle and pull him in before that deal closes," said Jefferies & Co analyst David Windley, who also mentioned Boudreaux as a strong contender.

Snow, an industry veteran who oversaw Medco's $29 billion acquisition by rival pharmacy benefit manager Express Scripts this year, is likely looking for a new challenge.

"He might be a sensitive choice for WellPoint because of his conflict with Calpers at Medco, and given WellPoint's significant presence in California that might be a problem," Windley said.

Calpers, California's pension fund for public employees, is also a WellPoint shareholder. Medco agreed in March to pay $2.75 million to resolve a potential ethical conflict for its hiring of a former Calpers board member as a consultant to help it win business at the fund.

"I'm not sure that is a major roadblock," said David Shove, an analyst with BMO Capital Markets. "Snow and Medco were never accused by any external authority that indicated that they had done anything that was really illegal."

Former Aetna Chairman and CEO Williams would be a big name, but a non-compete clause in his Aetna contract that runs into the first half of next year would keep him on the sidelines as WellPoint works to close its Amerigroup purchase and make the kinds of changes investors have been clamoring for.

Shove is hoping that WellPoint will choose an external CEO candidate without prior connections to the company or its board.

"It needs a fresh set of eyes in order to make the kind of changes that will lead to better execution," Shove said. "The issues have been execution and not strategy as much."

There is no shortage of qualified candidates following several waves of industry consolidation that has freed up very experienced executives, he said.

"There's a fairly wide open field of play here," Shove said, noting Aetna's recent announcement that it plans to buy Coventry Health Care Inc.

WellPoint shares closed up $4.41, or 7.7 percent, at $61.80 on the New York Stock Exchange.