FHP’s Offer for TakeCare Turned Down : Health care: Rejection of the deal is expected to set off a bidding war. Merger would have been the industry’s largest.
TakeCare, a prized Northern California health maintenance organization, spurned an $829-million takeover offer Tuesday from Orange County-based FHP International Inc., triggering a likely bidding war in the increasingly merger-minded health care industry.
Sources said FHP’s Orange County competitor, PacifiCare Health Systems Inc. of Cypress, will be among the bidders, though a PacifiCare spokesman declined to say whether the firm is interested.
With 742,000 members in California, Colorado and the Midwest, TakeCare is considered a premium merger candidate that could command bids as high as $75 a share, or more than $1 billion all told.
TakeCare said a deadline for FHP to complete negotiations on its $62-a-share cash and stock acquisition offer lapsed Tuesday, allowing the Concord-based HMO to consider other suitors.
“Other organizations have come to the table and submitted competing bids,” said TakeCare spokesman David Briere, who declined to identify the would-be merger partners.
One health care analyst who asked not to be identified noted that PacifiCare has more than $200 million in cash to join a fight for TakeCare. The firm recently secured a $130-million line of credit from Chase Manhattan for mergers and acquisitions.
Tuesday’s announcement drove TakeCare’s stock up $2.875 a share to close at $66.875 in heavy Nasdaq trading. FHP stock fell $1.125 on the Nasdaq to close at $26.75 a share.
FHP vowed to continue its effort to purchase TakeCare.
“This isn’t the end,” said Chief Executive Westcott (Bill) Price III, though he declined to say by how much FHP would sweeten its offer.
FHP had reached a tentative agreement to purchase TakeCare on Jan. 10, hoping to use the firm’s Northern California and Colorado membership as a way to expand its lucrative HMO plan for Medicare recipients.
The deal, which in dollar terms would have been the biggest managed care merger in U.S. history, would have created California’s second-largest HMO behind Kaiser Permanente.
But FHP’s initial bid was doomed from the start.
Days after it was announced, owners of 22% of TakeCare’s stock filed a lawsuit in Delaware accusing Chairman Jack R. Anderson of touting FHP’s offer for personal financial gain. They alleged that Anderson cajoled a majority of board members to vote for FHP’s offer despite a higher bid from United Healthcare Corp. of Minnetonka, Minn.
Anderson has denied the allegations.
Ed Keaney, a health care analyst for brokerage Stifel Nicolaus in St. Louis, said that if FHP truly believes in the synergy of the two operations, it will pay the price and be more creative in how it designs its next offer.
“What we will see is a deal much different than the one that started all this,” Keaney said.
Ultimately, TakeCare may sell for as much as $75 a share, according to Mary O’Connell, an analyst with the San Francisco brokerage Louis Nicoud Associates. “It is a good piece of property,” she said.
The stalled talks between FHP and TakeCare mark the third time in a year that a much anticipated health care merger has not come off as expected.
Last fall, a pact between Blue Shield of California and Unihealth America failed over disagreements on how to reorganize the combined firm.
And a pending merger of Health Net Inc. of Woodland Hills and Qual-Med Inc. of Pueblo, Colo., has hit a snag, partly because of an $89.1-million medical malpractice award to a Health Net member.
