WellCare CEO’s Ouster Leaves Analysts Scratching Their Heads

By James Gutman - November 1, 2013 Even among members of an audience accustomed to expect the unexpected, WellCare Health Plans, Inc.’s announcement Nov. 1 that it was replacing its CEO left some securities analysts shell-shocked. WellCare detailed the ouster of CEO Alec Cunningham on the same day it unveiled very strong third-quarter financial results. And despite what company Chairman David Gallitano, who was named interim CEO, said about the reasons in the quarterly earnings conference call with investors, some analysts were wondering if there is more to the story. Gallitano, a WellCare director since 2009 but chairman just since this May, said in his prepared remarks that “we needed a CEO with a demonstrated track record of leading a business of large scale and leading a company the size and scope we anticipate WellCare will obtain over the next several years. This change is not the result of any other issue.” In the question period, Gallitano elaborated only slightly, praising Cunningham’s ability to get the company to execute smoothly but adding that WellCare now needed someone “more strategic” and new ways of dealing with its “cost structure.” It’s hard to find any criticism about what Cunningham had accomplished. He took a company whose previous top management was indicted for alleged Medicaid fraud in its home state of Florida, rapidly settled the litigation at both the federal and state levels, and achieved steady growth in revenues and net income on both the Medicare Advantage (MA) and Medicaid sides of its business. WellCare even got back in Florida’s good graces, and the company wound up winning eight regions in the state’s recent Medicaid managed care procurement. So what else might be involved here? Securities analyst Brian Wright of Monness Crespi Hardt wondered in a Nov. 1 research note if one factor is that “a company with as much growth ahead of it with an interim CEO becomes a more intriguing acquisition candidate.” But Gallitano, who has been president of a private investment firm for the past 11 years, sought to dampen that speculation, saying the board is not pursuing such a possibility, nor does it intend to. Analyst Carl McDonald of Citigroup Global Markets, also not clear on the reason, mused in a research note the same day, “The board must have been pretty unhappy…since this kind of change creates a significant distraction, particularly for the senior executives hired by Cunningham.” Gallitano himself praised that executive team and said any would-be CEO who wanted to bring in a whole new top management would have a significant red mark against his or her candidacy. What do you think happened to cause the shake-up? Is it a simple case of the company now being at a different stage and needing a different kind of leader? Is it perhaps due to needing someone new to slash costs in the face of the coming MA pay cuts? Will we ever know? http://aishealth.com/blog/medicare-advantage-and-part-d/wellcare-ceos-ouster-leaves-analysts-scratching-their-heads?utm_source=Real%20Magnet&utm_medium=Email&utm_campaign=27791780