Aetna to Split Firm, Rejects Surprise Bid
Aetna Inc., the nation’s largest health insurer that has been under fire in recent months from consumers, doctors and stockholders alike, has rejected a surprise takeover bid and said it would split into two new companies.
At the same time, the company acknowledged that its health insurance division, which covers 28 million Americans and offers more managed-care policies than any other company, needs to improve its relationships with patients and doctors, and make its plans more flexible.
Aetna, based in Hartford, Conn., said Sunday that its board had unanimously refused a $10-billion takeover offer from WellPoint Health Networks of Thousand Oaks, and ING Groep, a Dutch investment bank and insurer, saying the offer significantly undervalued the company.
Instead, Aetna will divide itself into two separate, publicly traded companies, spokeswoman Joyce Oberdorfer said. One company would comprise the health-care division and the other the company’s financial services and international insurance arms. Each company would have its own stock.
WellPoint and ING had made their offer, which they termed “an invitation to begin negotiations,” rather than a formal takeover bid, on Feb. 24, the day before the ouster of Chairman and Chief Executive Richard Huber, who had presided over an unprecedented decline in the company’s stock.
WellPoint said Sunday that it was disappointed Aetna had decided not to pursue a deal. “WellPoint continues to believe that the terms discussed in the WellPoint and ING joint letter . . . represent outstanding value for Aetna’s shareholders,” WellPoint said.
At Aetna, the details of the split have not yet been fully worked out, Oberdorfer said. It also was not yet clear how stockholders would be compensated for the change. But company sources said one scenario under consideration is a so-called tax-free spin-off, in which stockholders would be issued shares of both new companies to replace the shares they currently own.
“Each of our two core businesses has great potential, and each will be better able to recognize that potential as a separate company,” said Aetna Chairman and CEO William H. Donaldson, who took over last month.
Donaldson has acknowledged that the health-care division has brought in “disappointing” results.
“I’m not sure that this transaction (creating two companies) will result in any additional value for shareholders,” Todd Richter, a Banc of America analyst, told Bloomberg News.
Aetna’s stock, which traded as high as $99.88 in May, has steadily declined in the last year and spent most of February near its 52-week low of $38.50. Shares got a lift after news of the WellPoint/ING offer came to light and on Friday, the stock closed at $56 on the New York Stock Exchange.
The company, which continues to turn a modest profit, has suffered for a variety of reasons, not the least of which is Wall Street’s overall disenchantment with managed-care companies.
At Aetna in particular, investors are concerned that quality issues, which have already spurred several expensive lawsuits, could continue to plague the company.
To remedy that, Donaldson plans to strengthen the health-care business by taking steps to improve relations with physicians, who are chafing under the company’s tight contracts and low reimbursement policies, Oberdorfer said. The company also plans to make overtures to consumers, who have complained bitterly about the powerful insurer’s tight rein on approving medical examinations and procedures.
To that end, Oberdorfer said, Aetna plans to review its physician contracts and offer insurance plans that are more flexible than the tightly controlled HMO products it now offers.
