WellPoint Health Networks is mulling a possible acquisition of Prudential Insurance Co. of America's financially struggling health-care unit, but is balking at the price, sources said.
WellPoint, a Woodland Hills-based managed-care company, so far has been unwilling to match Prudential's supposed asking price of about $1.6 billion, according to a person familiar with the situation.
Because of that, Humana Inc., a Louisville, Ky.-based health-care company, is believed to have the upper hand in the bid to acquire Prudential, sources said.
Prudential's health-care unit has struggled to compete amid intense competition and has mostly sat on the sidelines while other managed-care insurers grew larger through mergers and acquisitions. The business has 4.7 million HMO members--including more than 450,000 in California--and 2 million more in other types of insurance plans.
"We really can't comment on speculation right now," said Peggy Frank-Lyle, a Prudential spokeswoman. Humana officials could not be reached for comment.
For WellPoint, the purchase of Prudential would mark a shift in strategy for Chairman Leonard Schaeffer, who has made a series of smaller acquisitions of health insurers that focused on indemnity insurance. Schaeffer has bought those firms at bargain prices, then shifted their membership into more profitable managed-care programs.
WellPoint's strategy has worked well, especially in comparison with such competitors as Foundation Health Systems, PacifiCare Health Systems and Aetna, which have stumbled after paying handsomely to buy large HMOs.
On Wednesday, Standard & Poor's warned of a likely downgrading in the credit rating of WellPoint or Humana in the event that either firm acquired Prudential for more than $1.5 billion. It left the ratings unchanged for now.
"There is substantial uncertainty whether either of these two companies will ultimately purchase Prudential's health-care business or whether Prudential will decide to sell the business," S&P said.
WellPoint shares rose 56 cents to close at $47.13 on the New York Stock Exchange.