Humana Joins in Spirited Bidding for Health Net

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 company executives--remains the smallest of the bids received but is still favored by the HMO’s board. 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. The bidders are unrelated to Shamrock Holdings Co., a Burbank investment firm controlled by Roy E. 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 most recent offer from Humana, a Louisville, Ky.-based owner and operator of 85 hospitals with $5 billion in combined annual revenue, will not be evaluated by Health Net’s directors until later this week, Greaves said.

Greaves would not disclose details of the Humana offer other than to say it “was in the range” of the Shamrock bid. Humana officials could not be reached for comment.

The buyout offer from Health Net management calls for the takeover to occur at the same time 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 be equal to 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. 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.

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 the offer makes to the charitable foundation.