DOJ Questions Aetna-Humana Asset Sale Plan in Court
09 December 2016 - 9:05AM
Dow Jones News
By Brent Kendall
WASHINGTON -- The Justice Department hammered away in court
Thursday at the viability of a plan by Aetna Inc. and Humana Inc.
to sell off assets to alleviate antitrust concerns about their
proposed $34 billion merger.
The department, which is suing to block the merger, questioned
the ability of the proposed asset buyer, California-based Molina
Healthcare Inc., to keep the market for private Medicare plans for
senior citizens competitive if Aetna and Humana combine.
Currently the two large health insurers compete head-to-head in
hundreds of counties for the sale of Medicare Advantage plans,
which are government-backed alternatives to traditional
Medicare.
Justice Department lawyer Ryan Kantor said Molina's own
documents showed that its board members had concerns about the
wisdom of buying assets from Aetna and Humana.
Molina ultimately did so, agreeing to pay $117 million for
assets representing about 290,000 Medicare Advantage enrollees in
21 states. Currently, Molina focuses largely on Medicaid, the
government health-care program for the poor.
Mr. Kantor introduced as evidence several internal Molina
documents as he questioned Molina Chief Financial Officer John
Molina on the witness stand.
In one document, Mr. Molina wrote a memo to his board earlier
this year in which he said Aetna was likely to keep its
better-performing assets for itself while selling others to Molina.
Mr. Molina in the memo also said his company didn't have the same
level of administrative manpower or experience as Aetna and
Humana.
In a separate email exchange, Molina board member Dale Wolf, the
former CEO of Coventry Health Care, which is now owned by Aetna,
said Molina was "woefully under-resourced" to take on the
Aetna-Humana assets unless it could acquire new talent. He also
said the assets were "a very different business from what we
do."
In a different email, another board member wondered how the
company's newly acquired enrollees would feel about transitioning
from Aetna "to a relatively unknown Molina." Mr. Molina wrote back
in response, "We have built in a 10% decline in membership for that
very reason."
Mr. Molina in the internal discussions said his company
shouldn't stretch itself, and should pursue the Aetna and Humana
Medicare assets only "if we can get a clear bargain."
He testified Thursday that Molina did in fact get a good price
on the assets, though only if it can make the deal work, which he
said the company intends to do. Mr. Molina said his company would
make the necessary investments, including in hiring new employees,
and was "good at building name recognition."
He also said Molina had made more than 20 acquisitions
previously and experienced few problems in integrating those assets
into its business.
Buying the Aetna-Humana assets would help diversify Molina's
revenue streams and would make investors and customers happy, Mr.
Molina said. He added that some of the board members' concerns at
the time were based on incomplete information.
The trial is set to run through Dec. 30. A decision by U.S.
District Judge John Bates on whether to allow the Aetna-Humana
merger is expected in January.
Aetna CEO Mark Bertolini is expected to take the witness stand
early next week.
--Anna Wilde Mathews contributed to this article.
Write to Brent Kendall at brent.kendall@wsj.com
(END) Dow Jones Newswires
December 08, 2016 16:50 ET (21:50 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Aetna (NYSE:AET)
Historical Stock Chart
From Aug 2024 to Sep 2024
Aetna (NYSE:AET)
Historical Stock Chart
From Sep 2023 to Sep 2024