Health Net Receives Another Buyout Offer

Qual-Med Inc., a health-care provider based in Colorado, disclosed Friday that it has offered to acquire Health Net for $300 million, thus becoming at least the fifth outside bidder for the big California health maintenance organization.

The Qual-Med proposal, whose price surpasses those of the other offers, was delivered to Woodland Hills-based Health Net last month, and the HMO’s board “has examined it and continues to, along with many other submissions,” spokesman Jim Lucas said.

The bidding war for Health Net--the state’s second-largest HMO with about 840,000 members--was sparked in May when its management, led by Chairman Roger F. Greaves, proposed to acquire the organization at the same time the HMO converts from nonprofit to for-profit status.

Any takeover deal first must be approved by Health Net’s directors, then approved by the state Department of Corporations. So far, Health Net’s board, which is dominated by members of the management buyout group, has signaled no interest in any of the offers.

Although the outside bidders have topped the management group’s offer, the Department of Corporations says it cannot force the board to give closer consideration to one bid or another, regardless of the prices offered. And the outside suitors can’t try to circumvent management by taking their offers directly to stockholders because Health Net is not publicly held.

Qual-Med, a 6-year-old company based in Monte Vista, Colo., operates HMOs for a total of 235,000 members in Colorado, California, Idaho, New Mexico, Oregon and Washington. The company, which had revenue of $142 million in 1990, has been rapidly building its business through acquisitions. One of its most recent purchases was Dec. 31, when it bought HEALS, an HMO in Northern California.

Qual-Med also went public June 11 with an initial stock offering that raised $44 million for the company.

The other offers for Health Net included one for $225 million from Humana Inc., a major hospital operator based in Louisville, Ky.; a $200-million proposal from Shamrock Investments, a Los Angeles investor group, and a $135-million bid from Pacific Mutual Life Insurance Co. in Newport Beach. Also, Blue Cross of California, the Woodland Hills-based nonprofit operator of the state’s largest health insurance concern, proposed a straight merger with Health Net.

To convert to for-profit status, an HMO in California must contribute an amount equal to its “fair market value” to a charitable foundation, and Health Net’s plan calls for the contribution to be $108 million. The idea is to reimburse the public for having allowed the HMO to grow under its tax-exempt status.

Simultaneously, Health Net’s management would purchase ownership of the new, for-profit Health Net for $1.5 million. If Health Net went public or was purchased in future years, management could reap many times that investment.

Even before the outside suitors began submitting their bids, critics complained that $108 million vastly understated Health Net’s value and would shortchange the public. Health Net has said the valuation was made by an outside accounting firm under guidelines set down by state regulators.