"Managed Care Update"

WellPoint Health Networks Offers To Buy Aetna For $10.5 Billion

Unsolicited tender includes Dutch insurer, catches Aetna in the midst of a CEO transition

TAKING ADVANTAGE of a weak share price for Aetna, Inc., two major corporations sent an unsolicited tender offer to the Aetna board.

The joint bid was submitted by WellPoint Health Insurance Networks Inc. of Thousand Oaks, California, and ING Group NV, a Dutch insurance company. The bid was proffered to Aetna on March 1.

The two companies offered a price of about $70 per share, worth almost $10.5 billion. Aetna shares, trading around $40, immediately jumped 34% to $53 when traders learned of the bid.

Aetna Under Siege

Aetna is a company under siege. Its stock price declined 60% during 1999, a time when the stock market boomed. Poor financial performance by its health insurance division, Aetna/U.S. Healthcare was enough to cause the sudden resignation of Chairman and CEO Richard L. Huber just two weeks ago, on February 25, 2000.

For the clinical laboratory industry, Huber’s resignation should be read as a sign of difficult times for the HMO industry. Humana, Inc.’s CEO, Gregory H. Wolf, resigned last summer after Humana posted two consecutive quarters of losses.

At Pacificare Health Systems Inc., long-time CEO Alan R. Hoops has announced that he will retire as soon as a replacement CEO can be found. Pacificare, with a business plan that pushes 100% of the risk upon providers by the use of capitated contracts, is finding ever-growing numbers of hospitals and physicians rejecting capitation.

Ongoing Integration

The bid for Aetna by WellPoint and ING Group probably now puts Aetna into play. WellPoint, a national health insurer, has 7.3 million beneficiaries. With Aetna/U.S. Healthcare’s 21 million beneficiaries, it would become the nation’s largest health insurance company.

WellPoint has very different strategies than Aetna. It provides customers with many plan choices and uses a high co-pay, such as $20 per visit, to discourage overuse. Financial analysts say WellPoint has prospered during the past years as a result of doing small and medium-size acquisitions in selected markets outside California.

Change In Contract Policies

If WellPoint successfully acquires Aetna, its different operating philosophy would certainly change the way Aetna/U.S. Healthcare currently contracts for clinical services, including laboratory testing. From that perspective, an eventual acquisition of Aetna might be beneficial to regional laboratory providers
throughout the United States.

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