Why Wellpoint's CEO is Stepping Down

Equities Editors Desk  |

Wellpoint (WLP) Chairman and CEO Angela Braly resigned as pressure from dissatisfied major shareholders came to a boiling point after the second largest insurance company in the U.S. reported disappointing results in its latest quarterly earnings and cut its forecast. Shares are up over 7.5 percent in early trading on the news.

After five years in the CEO role, her resignation comes at an interesting time as Wellpoint is in the process of integrating key acquisitions such as Amerigroup--which it purchased for $4.9 billion it announced in July--and 1-800 Contacts--which it acquired for $900 million in June.

Among some of the major criticisms investors have levied against Braly include raising premiums, declining membership, and difficulties in projecting medical costs. Another major issue includes the company's aggressive stock buyback program in recent years that have failed to create much, if any, shareholder value.

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Wellpoint's share price has decreased by roughly 30 percent since Braly took over in 2007, and are down roughly 13 percent this year. Though the company's board has supported Braly prior to her stepping down, even in the face of growing investor criticism, the two sides agreed on the decision. In a note to employees addressing her departure, Braly expressed confidence in the company's direction.

"I have spoken with our board and we have agreed this is the right action for WellPoint at this time. We are in a very strong position strategically, with our recent actions positioning us well for the changes to come in health care. The company's foundation is secure, in large measure because of the strong work and commitment of our 37,000 associates, and for that I thank you. It has been a privilege and honor to work with the terrific associates at WellPoint, and to see first-hand all the great work you do for our members. One of our great strengths is the culture we have built together, which always puts the customer first. 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."

John Cannon, WellPoint’s general counsel, will serve as interim CEO but is not a candidate to serve as her permanent replacement, according to Bloomberg. James Carlson, the current CEO of Amerigroup, seems like the early favorite, though investors have suggested numerous other names to consider.

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