Rival Companies Duel to Acquire Health Net : Health care: HMO’s parent says it is considering separate $1.5-billion buyout offers from FHP International, Foundation Health.
The parent firm of Health Net, the state’s second-largest health maintenance organization, said Friday that it has received separate buyout proposals from California rivals FHP International and Foundation Health to acquire it for more than $1.5 billion in stock.
A deal between Woodland Hills-based Health Systems International and either of the other companies would create the nation’s largest publicly traded managed-care company, with at least $4.5 billion in revenue and 2.4 million members.
It also would form a health care powerhouse in California with enormous marketplace clout to negotiate medical-cost reductions from physicians, hospitals and other providers.
Shares of Health Systems soared 39%, or $8.50, to close Friday at $30.375 on the New York Stock Exchange. FHP shares were unchanged at $25.75 on Nasdaq. Foundation declined $1 to $31 on the NYSE.
In a statement late Friday, Health Systems said its board of directors has “expressly stated that the company is not for sale in view of the favorable future prospects of the company.†Nevertheless, the company said it has formed a special board committee to consider the proposals from FHP and Foundation Health “in the context of long-term value creation†for shareholders.
In a letter sent to Health Systems officials Dec. 12, Fountain Valley-based FHP offered to acquire the firm’s 49.8 million outstanding shares for $34 each, or a total of about $1.69 billion in stock.
A day later, Foundation Health, based in Rancho Cordova, offered to pay a 40% premium to Health Systems’ share price on Dec. 13--about $31.15 a share, or $1.55 billion in stock.
Following the first report of the proposals in Friday’s Wall Street Journal, Foundation Health said it has “had preliminary discussions (with Health Systems) regarding the advantages of a possible strategic combination.†Foundation said it has done neither a detailed financial analysis of Health Systems nor due diligence.
FHP officials declined comment.
Either transaction, analysts and industry observers said, would create a health-care company that could better withstand cost-cutting demands from employers and other health care purchasers. In California, the competition for members among HMOs has been especially cutthroat, forcing many insurers to slash medical premiums for next year.
Health Systems, FHP and Foundation Health already are digesting a number of significant mergers, both within and outside California. Health Net has 1.25 million members in the state. But neither it nor either of its potential acquirers has grown large enough to become as dominant a player as privately held Kaiser Permanente, which has 4.6 million members in California.
Besides Kaiser, California’s largest HMOs “are kind of at a stalemate,†said Thomas Hodapp, health care analyst at Robertson, Stephens & Co. in San Francisco. “Nobody (but Kaiser) has such dominant buying power in the market that they are a force that cannot be ignored. What this would do is create a company that couldn’t be ignored.â€
Foundation Health, whose 572,000 HMO members in California give it the smallest market presence of the three, could have the most to gain or lose from the bidding over Health Systems.
Foundation “might be saying, ‘If we don’t do this deal, somebody else will, and we’ll have a hard time becoming a dominant player,’ †Hodapp said. Foundation’s market presence would be particularly threatened if FHP--with more than 900,000 members in the state--or another large California HMO were to acquire Health Systems, analysts added.
Separately, a charitable foundation that is Health Systems’ largest shareholder filed a lawsuit against the company, accusing it of impeding the public sale of about 8 million Health Systems shares.
The California Wellness Foundation, in a suit filed Tuesday in Los Angeles Superior Court, alleges that the company failed to complete registration statements that would enable the foundation to sell shares to the public.
“We don’t understand why they filed the suit,†said David Olson, a Health Systems spokesman.
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