A group of shareholders has filed a lawsuit against health insurer Amerigroup Corp. and its adviser, Goldman Sachs & Co., alleging that the company eschewed more lucrative offers from other companies before agreeing to be acquired by WellPoint Inc. for $4.5 billion.
WellPoint is the largest of the Blue Cross Blue Shield insurers, and it sells policies in more than a dozen states, including Ohio and New York, but not in Pennsylvania.
The plaintiffs allege that Goldman was "hopelessly conflicted" on the transaction because under its agreement with Amerigroup it would receive $233.7 million if the company were sold prior to Aug. 13.
Amerigroup is the 22nd-largest health insurer in the U.S., by premiums collected, according to the National Association of Health Insurers. WellPoint is the second-largest.
The shareholders -- the City of Monroe Employees Retirement System and the Louisiana Municipal Police Employees Retirement System -- filed the lawsuit Aug. 16 in the Delaware Court of Chancery. In addition to Amerigroup -- which is headquartered in Virginia Beach, Va., and incorporated in Delaware -- Goldman Sachs, WellPoint and a subsidiary created for the merger were all named as defendants. Several of Amerigroup's directors were also named as defendants, including Thomas E. Capps, James G. Carlson and Jeffrey B. Child.
The plaintiffs contend in their initial complaint that Amerigroup entered exclusive negotiations with WellPoint on the advice of its financial advisers, Goldman and Barclays Capital Inc., the latter of which is not named as a defendant in the lawsuit.
According to the complaint, Amerigroup generated interest from five separate suitors identified in the lawsuit only as companies "D," "E," "F" and "G." The complaint also alleges that Company D offered a larger purchase price than WellPoint.
However, the plaintiffs contend that Goldman and Barclays encouraged Amerigroup to reject Company D's offer because it "would raise greater regulatory issues than a transaction with WellPoint and, accordingly, a transaction with WellPoint would have a higher degree of certainty of closing."
Further, the plaintiffs claim that Goldman was concerned with selling Amerigroup by Aug. 13 because it had entered into a complex derivative transaction with the company. According to the complaint, if the company were sold by the target date, it would be required to pay $233.7 million to Goldman. If the sale was completed prior to Oct. 22, Goldman would still receive an amount described as "substantial" but less than $233.7 million, according to the complaint, meaning it was in Goldman's interest for Amerigroup to sell sooner.
"In truth, the board granted WellPoint exclusivity because the company's primary investment banker, Goldman, was hopelessly conflicted due to its financial interests and pushed the board to sign the quick deal with WellPoint instead of pursuing a more lucrative deal with Company D. The company's management also preferred the WellPoint deal because they got to keep their jobs," wrote Stuart M. Grant, a plaintiffs attorney with Grant & Eisenhofer, a Wilmington, Del., firm.
The plaintiffs also claimed that Goldman pushed Amerigroup into entering an exclusivity agreement with WellPoint in order to avoid a protected bidding war for the company.
Later in the complaint, the plaintiffs allege that Amerigroup issued a misleading proxy statement Aug. 6 because it did not disclose Goldman's conflict of interest and the board's decision not to contact other interested parties regarding a possible merger.
Maureen McDonnell, Amerigroup's vice president of external communications, and Michael DuVally, a spokesman for Goldman, declined to comment on the lawsuit.
The plaintiffs allege one count of breach of fiduciary duties against Amerigroup's directors and one count of breach of fiduciary duties against the company's officials. The plaintiffs are also alleging one count each of aiding and abetting against Goldman, WellPoint and the subsidiary established for the purposes of the merger.
In the complaint, the plaintiffs ask the court to permanently enjoin the WellPoint transaction as well as issue a temporary restraining order to prevent the sale from being consummated while their lawsuit is pending. The lawsuit is the second case this year that alleges a conflict of interest against Goldman Sachs.