Investors Ignite Bidding War for Health Net HMO : Acquisition: A Los Angeles partnership offers $200 million for the Woodland Hills-based firm. A life insurer is also interested.

A bidding war broke out for Health Net on Monday, as the state’s second-largest HMO drew an unsolicited, $200-million takeover bid from a Los Angeles investor group that eclipsed an offer of $108 million made earlier by Health Net’s management.

Shamrock Investments, a 4-year-old firm that focuses on health-care investments, said it sent a letter to Health Net’s management offering $40 million in cash and a $160-million, 14-year note, whose other terms would be negotiated. Shamrock Investments is unrelated to Shamrock Holdings Co., a Burbank-based investment firm controlled by Roy Disney.

Meanwhile, Pacific Mutual Life Insurance Co., one of California’s largest life insurers, confirmed earlier Monday that it also is discussing a “cooperative venture” with Health Net. But Pacific Mutual, a Newport Beach-based insurer with $9.8 billion in assets, declined to specify whether it wants to buy all of Health Net, acquire a stake in the HMO or merge some operations.

Spokesmen for Health Net and Pacific Mutual declined comment on Shamrock Investment’s announcement. Health Net, a Woodland Hills-based concern with 840,000 members, is second in membership only to Oakland-based Kaiser Permanente among the state’s health maintenance organizations.

Shamrock and Pacific Mutual were able to approach Health Net because of a controversy over how much Health Net is worth, which has stalled the bid from Health Net’s management.

The management, led by Health Net Chairman Roger F. Greaves, offered in March to acquire the HMO and at the same time Health Net would convert from nonprofit to for-profit status. Under state law, the conversion and management’s buyout could occur provided Health Net donated an amount equivalent to its fair market value to a public charity--and provided the terms were approved by the state Department of Corporations.

(The conversion law is designed to compensate the public for the company’s tax-exempt status while it grew as a nonprofit entity.)

Health Net proposed contributing $108 million over 15 years, including $15 million up front, to a newly formed public health foundation. The company said the amount was determined independently by the accounting firm Ernst & Young.

But Consumers Union, the publisher of Consumer Reports, and other critics complained that the amount vastly understated Health Net’s value. And as the criticism mounted last week, the Department of Corporations delayed its decision pending further review of the deal. The delay enabled Shamrock and Pacific Mutual to step forward.

In announcing its bid, Shamrock said “the public would be better served by the increased offer,” whose proceeds would likewise be donated to a charitable group. “Our desire is to work together with the board and management to assure fair value to the public,” Shamrock President Michael E. Gallagher said in his letter to Health Net.

One of Shamrock’s more visible moves came in 1989, when it joined with takeover specialist Clayton & Dubilier to launch a nearly $2-billion offer for American Medical International Inc. The Beverly Hills-based hospital management firm ultimately was bought by a group that included Chicago’s wealthy Pritzker family and the investment firm First Boston Corp.

With Shamrock and Pacific Mutual involved, the Health Net situation is beginning to resemble a similar fight for a California HMO in 1985-86, when FHP International in Fountain Valley converted to for-profit status. In that case, FHP management offered a $38.6-million contribution to a charity to acquire the company, but another HMO, Maxicare Health Plans, offered $50 million.

However, a Los Angeles Superior Court judge ruled then that converting HMOs are not required to sell out to the highest bidder. So management got control.

Later in 1986, FHP’s management took FHP public with a stock offering, which promptly gave FHP a total market value of about $150 million--of which $114 million represented FHP stock still held by management.