Two Louisiana employee pension funds appear to have gotten their way in a shareholder derivative lawsuit related to the proposed sale of Medicaid insurer Amerigroup Corporation to managed care giant Wellpoint. Goldman Sachs negotiated the terms of the sale. The City of Monroe Employees Retirement System and the Louisiana Municipal Police Employees Retirement System commenced the business law action to challenge a perceived conflict of interest in the investment firm’s advice to the board of the Medicaid insurer.

According to the pension funds’ complaint, the investment firm advised the insurance company’s board to ignore more lucrative acquisition opportunities in favor of the managed care firm’s offer. The pension funds claim that the investment firm stood to recognize a substantial benefit through consummation of the merger agreement with the managed care firm.

Regulatory filings indicate that the insurance company’s stock prices increased during merger negotiations to more than nine dollars above the purchase price initially offered by the managed care company. Although the filings indicate that a second company expressed interest in a possible acquisition prior to the deal with the managed care company, there is no indication that any company other than the managed care company made an actual offer.

Although the defendants deny any wrongdoing in the transaction, they have agreed to settle the lawsuit by modifying the terms of the $4.46 billion dollar acquisition. The insurance company has agreed to consider any better offers that may be presented in advance of a newly scheduled shareholder meeting set for late October. The parties also modified the existing offer by cutting $49 million from the fee that the insurance company would have to pay to the managed care company if it decides to back out of the deal.

The insurance company officially justified its decision to accept the managed care company’s offer on grounds that it presented fewer regulatory concerns than a potential acquisition by the unknown company that expressed prior interest. The shareholders’ concerns, however, illustrate the importance of transparency in merger negotiations.

Source: Fox Business, “Amerigroup, Wellpoint Will Amend Agreement to Resolve Lawsuit,” Jon Kamp, Oct. 2, 2012