Health Systems’ CEO Pulls Support for WellPoint Merger : Acquisitions: Hasan revokes proxy in favor of deal. Action is latest in ongoing feud between firms’ chairmen.
Escalating the feuding between two would-be merger partners, Health Systems International’s chairman said Monday that he and other major shareholders would no longer back the proposed acquisition of Health Systems by WellPoint Health Networks.
Analysts said the action deals a significant, though not fatal, blow to WellPoint’s plans to create one of the nation’s largest health maintenance organizations by acquiring the corporate parent of Health Net for roughly $1.5 billion.
“It’s another swipe in an ongoing saga,” said Todd Richter, analyst with Dean Witter Reynolds in New York. “It’s not a signal that this is the end of the deal.”
Analysts said Health Systems Chairman and Chief Executive Malik M. Hasan, who owns 19% of his firm’s voting stock, is turning up the pressure on WellPoint Chairman Leonard D. Schaeffer to negotiate a resolution of the dispute between the two giant managed health care firms.
Hasan said that he and five other shareholders--including two Health Systems directors--who own another 6% of the company’s voting stock, had revoked their proxies to vote in favor of the deal.
According to company officials, the merger has been derailed by a power struggle between Hasan and Schaeffer over their post-merger management roles and compensation for senior management. Specifically, Health Systems officials have said the health care executives are at odds over who would control merger and acquisition activities--a role Hasan seemed to have had locked up when the deal was announced in April.
David Olson, a Health Systems spokesman, described Hasan’s move as “an action by individual stockholders.” Health Systems remains committed to “resolving the disagreements,” he said.
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WellPoint officials said they also want to complete the deal but were “puzzled” by Hasan’s actions and what they said were conflicting statements by Olson.
“What is Health Systems’ position on moving ahead with this transaction?” said John Cygul, a WellPoint spokesman. “It raises the issue of who is representing the company,” Hasan or a special board committee that is negotiating on behalf of Health Systems.
Richter, the Dean Witter analyst, said Hasan’s action “could be taken as a sign that perhaps Hasan does not have the unanimity of the board and felt a desire to do this on his own.”
Analysts said it is doubtful the deal will go forward without Hasan’s eventual support, since he was to play a crucial role in managing the merged firm.
“It’s a long shot to think that Health Systems’ special committee could think this deal makes sense if Dr. Hasan is not involved,” said Edward Keaney, analyst with Volpe, Welty and Co. in San Francisco.
Health Systems’ shares closed Monday at $30.63, down 88 cents, while WellPoint finished at $29.88, down $1.125.
The complex deal, as approved by California regulators, would create the nation’s second-largest publicly traded HMO and twin health care charities. Nonprofit Blue Cross of California, owner of 80% of WellPoint’s stock, would convert to for-profit status in a related transaction.
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Executives of the two companies, whose headquarters are across the street from each other in Woodland Hills, are engaged in an increasingly intense rhetorical battle that makes a supposedly “friendly” merger sound more like a proxy fight.
The dispute came into public view in early November when company officials disclosed that significant unresolved issues were delaying completion of a definitive agreement. That prompted a state regulator to send a scolding letter to both companies, urging them to resolve their disputes and finish the deal. Further details about the nature of the problems were included in copies of confidential documents and memoranda between the companies, which were leaked to news reporters.
Analysts have said the power struggle between Hasan and Schaeffer bodes ill for their working together if the deal is completed. Some speculate that one of the executives--probably Hasan, whose company is being acquired--might be forced out as a result of their dispute.
If either company backs out before their formal agreement expires on Dec. 31, it must pay a $50-million penalty to the other company. WellPoint on Nov. 20 asked California regulators to extend the deadline to Jan. 15.
