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TakeCare Shareholders Keep Pressure on Board : Acquisitions: They attack $8-million breakup fee anyone taking over firm would have to pay FHP.


Shareholders with a 22% stake in TakeCare Inc., a Northern California health maintenance organization that has become a takeover target, aren't satisfied that the TakeCare board is seeking the highest bid.

TakeCare earlier this month canceled a preliminary agreement to be bought by FHP International Corp. in Fountain Valley for about $829 million in cash and securities. The cancellation came on the heels of a lawsuit filed by some TakeCare shareholders, who claimed a better offer was available from United HealthCare Corp.

The offer by FHP, another HMO operator, was valued at $62 a share. The suit filed by TakeCare shareholders contends that Minnetonka, Minn.-based United made a bid valued at $64.70 a share.

Now the unhappy TakeCare shareholders are continuing to press ahead with their lawsuit--even though Concord-based TakeCare says it's discussing mergers with other suitors, in addition to FHP. A hearing is scheduled for March 1 in Delaware Chancery Court.

The shareholders are attacking an $8-million breakup fee that any acquirer of TakeCare would be required to pay to FHP, according to court filings. While TakeCare said on Feb. 8 that it had terminated its agreement in principle to be acquired by FHP, the breakup fee provision was maintained.

"The breakup fee is still in effect," said Lanson Hyde, a spokesman for TakeCare. "If a company other than FHP acquires TakeCare, it is conceivable the fee would have to be paid."

Plaintiffs in the shareholder suit filed Jan. 18 contend the breakup fee will deter bidders such as United.

In addition to hiking acquisition costs, the suit claims, the $8-million breakup fee would force a purchaser to quickly write off nearly $500 million in goodwill.

In accounting for acquisitions, goodwill is the difference between the purchase price of a firm and what the assets of the operation would bring in a liquidation. Goodwill includes such things as the value of a business name, employee morale, good customer relations and other intangible assets that make a company worth more than the sum of its tangible assets.

The plaintiffs claim one of the most attractive features of making an all-stock bid for TakeCare would be the ability to avoid taking hefty charges against earnings to account for goodwill on TakeCare's balance sheet. Goodwill normally is written off over two or three decades.

The suit seeks to abolish the breakup fee, claiming it is part of a scheme by TakeCare Chairman Jack R. Anderson to secure cash in the transaction. The suit claims Anderson has gone to extraordinary lengths to favor FHP and is motivated by "a personal desire to convert a substantial portion of his TakeCare stock to cash."

TakeCare contends the suit is without merit. In court filings the company has said Anderson favored an offer with a cash component, instead of an all-stock offer, such as United's bid, simply because it would reduce the volatility of the value of any such offer.

The legal battle pits Anderson, who owns 16% of TakeCare's outstanding shares, against billionaire industrialist Henry L. Hillman, who owns an 18% stake in TakeCare and whose Pittsburgh-based foundations are among the plaintiffs in the suit.

TakeCare has said it is talking with several suitors, in addition to FHP, but has declined to name them. A TakeCare-FHP merger would have created one of the nation's top three publicly traded HMOs.

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