Directors of Health Net Shun 2 Offers : Acquisitions: Humana is the third company to join the bidding. But the Woodland Hills HMO favors a $108-million proposal by management.
Health Net said Monday that its directors rejected two outside offers to buy the HMO, but not before giant hospital operator Humana Inc. weighed in with a third bid to purchase the Woodland Hills-based concern.
A fourth acquisition offer--a controversial, $108-million proposal from Health Net Chairman Roger F. Greaves and 31 other Health Net executives--is favored by the HMO’s board. All three outside offers are higher than management’s bid.
Health Net, with 840,000 members, is the state’s second-largest health maintenance organization behind Kaiser Permanente.
In an interview Monday, Greaves said the board rejected a $200-million offer made last week by Shamrock Investments, a Los Angeles investor group that is unrelated to Shamrock Holdings Co., a Burbank investment firm controlled by Roy Disney.
Health Net’s board likewise rejected a $135-million offer from Pacific Mutual Life Insurance Co., a Newport Beach-based company that is one of the state’s biggest insurers, Greaves said.
Greaves said that in general, the Shamrock and Pacific Mutual bids were rejected because the board is concerned that those entities would interfere with Health Net’s strong interest in preventive care.
The offer from Humana, a Louisville, Ky.-based owner and operator of 85 hospitals that have $5 billion in combined annual revenue, will not be evaluated by Health Net’s directors until later this week, Greaves said. No details were released, although Greaves said the Humana offer was “in the range” of Shamrock’s $200-million bid. Humana officials had no immediate comment.
The plan by Health Net management to acquire the HMO calls for the takeover to occur at the same time that Health Net converts from nonprofit to for-profit status. Health Net wants to convert in part to improve its ability to raise cash in the financial markets.
As state law requires, the money paid for Health Net would be contributed to a public foundation, and the amount is supposed to equal the “fair market value” of the HMO. But critics such as Consumers Union, publisher of Consumer Reports, have asserted that the $108 million offered by management vastly understates Health Net’s value and so would shortchange the public.
Nonetheless, Health Net’s board has the upper hand concerning outside offers. That’s because, unlike a publicly held company, Health Net has no stockholders to whom an outside suitor could directly pitch its bid and circumvent Health Net’s management. Still, final approval for any buyout must come from the state Department of Corporations.
The Greaves-led management group submitted its offer for Health Net to the Department of Corporations in March, but didn’t announce it then. It wasn’t until late last month that details about the plan began to surface publicly, and then the other bids started rolling in.
Charles P. Reilly, Shamrock’s managing general partner, said, “We would still like the opportunity to meet with the board” to discuss Shamrock’s offer, “and we’re considering the alternatives that are available to us in pursuing the matter further.”
Robert Haskell, a spokesman for Pacific Mutual, likewise said, “We’re still certain we can assist the management of Health Net in making a higher offer” for the company. He also noted that the $135-million figure being offered by Pacific Mutual was a minimum price that could go higher because of incentives that the offer makes to the charitable foundation.
