By Todd Cohen
The big foundation created through the proposed conversion of Blue Cross and Blue Shield of North Carolina from a nonprofit entity to a for-profit business initially would own all the insurer’s stock but should reduce its shares to less than 5 percent over 10 years at the latest, Blue Cross says.
A new conversion plan that Blue Cross filed July 26 with Insurance Commissioner Jim Long also proposes that it and the new Health Foundation for North Carolina would name, by mutual agreement, one member of the for-profit insurer’s holding company.
The foundation would have room to decide how often or when to sell Blue Cross shares, while Blue Cross would decide when to sell stock to the public for the first time in an initial public offering.
While the value of the stock, and thus the foundation, will depend on market demand, the foundation assets are expected to total $1 billion to $2 billion — making it one of North Carolina’s largest philanthropies.
After the initial public offering, either Blue Cross or the foundation could request additional sales of stock, with Blue Cross generally paying the costs of registering stock for those sales, Blue Cross has proposed.
To take effect, Blue Cross’ conversion plan must be approved by Long, Attorney General Roy Cooper and the Blue Cross and Blue Shield Association, which owns the rights to the use of the “Blue Cross” and “Blue Shield” names and marks.
Long is expected to hold three public hearings throughout the state in October, Blue Cross says.
Cooper, who under state law would name the 11 members of the foundation’s board, is interviewing 22 finalists selected by a screening process set up under the law.
Under the rules of the Blue Cross and Blue Shield Association, neither the new foundation nor any other individual investor can control 5 percent or more of stock in Blue Cross’ holding company, and institutional investors cannot control 10 percent or more.
The new conversion plan calls for 95 percent of the foundation’s stock initially to be placed in a voting trust, and the foundation would able to direct the voting of those shares on “fundamental corporate transactions,” such as sale or merger of the company or any transaction involving at least 25 percent of the company’s assets or stock.
The association’s rules bar the new foundation from voting its shares directly on most issues, such as the election of members of the company’s board of directors and other policy issues. On those issues, the company would have the right to direct the voting of the foundation’s shares held in the trust.
The foundation would be required to reduce its share of stock to less than 80 percent after one year, less than 50 percent after three years, less than 20 percent after five years and less than 5 percent after 10 years.
And as long as it owned 20 percent or more of the stock, the foundation also could not solicit buyers for Blue Cross.
Brad Wilson, senior vice president and general counsel of Blue Cross, says the new plan would guarantee that the company and foundation operate independently of one another, while “assuring that the foundation’s voice is heard on crucial company matters.”
While the foundation should be strong, “we must continue to resist any provisions that would limit our ability to operate as other for-profit health care companies do,” Wilson says. “Any handcuffs on our ability to operate would make us less attractive to investors, thereby weakening the potential value of both the company and the foundation.”
He adds that Blue Cross “will not pursue any conversion that hamstrings our ability to operate in the best long-term interests of our company and our customers.