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Aetna rejects takeover offer, opts to divide into two companies

Rebuffing a $10 billion acquisition bid, Aetna Inc. announced plans to split its health care and financial services businesses into two publicly traded companies. The move, announced March 12, is designed to improve shareholder value and the quality of service to 47 million customers, the company says.

"Each of our two core businesses has great potential."

Hobbled by rising medical costs, the Hartford, Conn.-based insurer faces a sagging stock performance and class action lawsuits, among other troubles. Shortly before Aetna's board met March 10, shareholders filed a lawsuit in Hartford Superior Court against the insurance giant. The lawsuit charges Aetna has failed "to maximize stockholder value." The company's stock price dropped from a near $100 high last year to less than $40 a share last month.

Aetna seeks to mollify its shareholders by splitting into two separate businesses. "The decision to separate health and wealth businesses into two separately created companies should create more value for our shareholders," CEO William H. Donaldson points out, speaking in a March 13 conference call with analysts.

Donaldson, who was appointed CEO in a shakeup of the company last month, emphasizes that enhancing shareholder value remains Aetna's "No. 1 goal." Donaldson replaced CEO Richard L. Huber, who was pressured to resign Feb. 25.

Donaldson does not specify a date, but says the separation should be complete by the end of the year. And no decisions have been made yet about the names, locations, staffs, and boards of directors for the two companies, Donaldson says.

"Each of our two core businesses has great potential, and each will be better able to realize that potential as a separate company," he vows.

To improve profits, Donaldson says the company will cut about $150 million by reducing advertising and technology spending and by reducing staff through attrition.

Aetna plans to tighten its belt without hurting consumers. "We have the option to not allow the attrition to happen in any areas where in any way it would cut back on our customer service," Donaldson says.

An offer they can refuse

Meanwhile, Aetna's board of directors unanimously rejected a $10 billion offer to take over the insurer by WellPoint Health Networks Inc. and ING Group. WellPoint, a managed care company, and ING Group, a Dutch investment bank and insurer, offered to take over the company in a plan that would have given shareholders $70 per share.

Aetna received WellPoint's offer Feb. 24, the day before Huber resigned and was replaced by Donaldson. "We think it was a totally inadequate offer for a number or reasons," Donaldson says.

The offer understates the value of Aetna and fails to reflect the current value or future potential of its core businesses, Donaldson explains.

In a statement released March 12, WellPoint says it is disappointed with the decision by Aetna's board. WellPoint believes its bid represents "outstanding value for Aetna's shareholders."

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