New York TImes
  Aetna Inc. said yesterday that it had received a $9.9 billion purchase offer last week from ING America Insurance Holdings, a financial services company in the Netherlands, and WellPoint Health Networks, a California-based national managed care company.
Aetna said in a statement that the bid was about $44 a share in cash and $26 a share in WellPoint stock, subject to due diligence and other unspecified conditions. Aetna‘s board is reviewing the bid.
Securities analysts said the offer opened the possibility of a bidding war for Aetna, the nation’s biggest health insurance company. Last week Aetna replaced its chief executive under pressure from investors who were dismayed by a 50 percent drop in the stock price and disappointing financial results from the company.
Trading in Aetna stock was halted on the New York Stock Exchange yesterday after Aetna soared 29 percent, to $53, on news of the offer, which was reported by CNBC. Shares of Aetna hit a high of $99.25 on May 10, and had declined to a low of $38.50 on Feb. 18.
The offer arrived in a letter last Thursday from ING, a unit of the ING Group, based in Amsterdam, and WellPoint, based in Thousand Oaks, Calif. The next day, at a previously scheduled meeting, the Aetna board named William H. Donaldson, a veteran investment banker and co-founder of the Wall Street firm Donaldson, Lufkin & Jenrette, to replace Richard L. Huber as chairman and chief executive.
WellPoint, which provides health coverage for about seven million people, is much smaller than Aetna, which covers 21 million. But Todd Richter, an analyst with Banc of America Securities, said WellPoint had “an extremely deep and solid management team that could go a long way in solving many of Aetna‘s problems.”
Aetna recently reported that the underlying costs of providing health care were rising faster than profits. It also told of disappointing results in its overseas business. Investors have also wondered whether Aetna would be able to wipe out losses at the Prudential Health Care unit that it bought from the Prudential Insurance Company.
Aetna and a number of other health insurance companies face dozens of lawsuits challenging fundamental managed care policies at a time when costs are generally rising as many patients insist on expensive drugs and procedures. Measures that will lower barriers to medical malpractice lawsuits against the companies have been enacted in a number of states. Similar proposals are under consideration in Congress.
Still, analysts said there might be higher offers for Aetna, reflecting the potential values if it was divided into separate health insurance, pension and overseas insurance companies — moves that Wall Street investors have been urging for months.
Arun Kumar, an analyst at Chase Securities, said that Aetna‘s “fundamental financial position is not that bad.” But he said the offer “clearly puts them in play,” open to other offers “whether they like it or not.”
“It puts a sense of urgency into what they would like to do with the company,” he said.
Kenneth S. Abramowitz, an analyst at Sanford C. Bernstein, said he expected Aetna to rebuff the WellPoint and ING offer as premature. Mr. Donaldson said on Friday that he planned to review all aspects of Aetna‘s management and business.
“If they do not accept the bid, they will have to restructure or find somebody else to buy them,” said Joseph D. France, an analyst at Credit Suisse First Boston.
WellPoint includes California Blue Cross and other health insurance units in Massachusetts, Chicago and Texas. It also agreed last year to buy Blue Cross and Blue Shield of Georgia for $500 million. Yesterday WellPoint completed the purchase of Rush-Prudential Health Care in Chicago for $200 million.
“Leonard Schaeffer saw a bargain he couldn’t resist,” Mr. Abramowitz said, referring to WellPoint‘s chairman and the low price of Aetna stock. Analysts said ING would probably want Aetna‘s international and financial units, while WellPoint would want the health care business.
Standard & Poor’s, the credit rating agency, said yesterday that it was reviewing WellPoint‘s debt “with negative implications” and would also review Aetna.
Critics of the health insurance industry said the combination of Aetna and WellPoint could narrow choices for consumers. Consumers for Quality Care, based in California, planned to ask the Justice Department to examine the deal, said Jamie Court, a spokesman for the group.
He noted that the government forced Aetna to sell several big Texas health plans after it merged with the NYLcare unit of the New York Life Insurance Company.
WellPoint and ING said in the letter that they intended to keep the proposal confidential, Aetna said. A spokesman for WellPoint and a spokeswoman for Aetna declined to comment yesterday.
