Buyout Team Resists Offers for Health Net

Managers of Health Net said Monday that they would continue to pursue a $108-million offer to buy the nonprofit health maintenance organization, apparently rejecting a $225-million buyout offer from Humana Inc. and a merger proposal from Blue Cross of California.

In a prepared statement, Health Net said: “We are unsympathetic to competitors’ attempts to burden Health Net with excessive debt that could force us to cut jobs, cut services and cut payments to physicians. . . . Meanwhile, management and the state Department of Corporations continue to discuss our proposal to convert to for-profit status. We anticipate a favorable decision.”

Jim Lucas, a spokesman for the Woodland Hills-based HMO, refused to say if Health Net had formally rejected the outside offers. Officials of Blue Cross, Humana and the California Department of Corporations, which regulates the HMO, said Health Net had not told them of any decision.

Last week, Health Net disclosed that the Department of Corporations has asked it to submit a revised valuation for the HMO.

Health Net, the state’s second-largest HMO with 840,000 members, earlier this month rejected a $135-million bid from Pacific Mutual Life Insurance Co., a Newport Beach-based insurer, and a $200-million offer from Shamrock Investments, a Los Angeles investor group.

The bidding war began in late May, when details surfaced about a plan by Health Net’s management to purchase the HMO for $108 million while converting the company to a for-profit enterprise. Of that $108 million, $1.5 million would be paid by the 32 members of Health Net’s management--led by Chairman Roger F. Greaves--involved in the proposed buyout. The rest would be paid out by Health Net over a 15-year-period.

Under state law, an HMO converting to for-profit status must contribute to a charitable foundation an amount equal to the HMO’s “fair market value.” The state Department of Corporations must approve any conversion.

Consumers Union, the nonprofit publisher of Consumer Reports, criticized the management offer as vastly understating the HMO’s worth. The group charged that the public would be shortchanged if the conversion went through at that price.

After publicity about the proposal Humana, a giant hospital operator based in Louisville, Ky., made a $225-million offer for Health Net, and Blue Cross, a nonprofit health insurer also based in Woodland Hills, proposed simply merging Health Net with its smaller CaliforniaCare HMO with no exchange of cash.

And Blue Cross last week called for Health Net to set up an independent committee to evaluate all of the offers for Health Net.