Byline: MARION GAMMILL Bloomberg News
HARTFORD, Conn. -- Aetna Inc., the biggest U.S. health insurer, said Richard Huber resigned as chairman and chief executive amid shareholder pressure after the company's shares lost more than half their value since May.
Huber, 63, was replaced by William H. Donaldson, 68, a co-founder of Donaldson, Lufkin & Jenrette Inc. and a member of Aetna's board since 1977. Donaldson will head a company with three main businesses: U.S. health insurance; financial services; and insurance and financial planning outside the U.S.
The company offers various insurance policies to customers in the Capital Region, including health insurance to 200 area businesses, a company spokesman said last year. It also has been trying to expand operations of its health maintenance organization, Aetna U.S.Healthcare, into the area for the last four years, but so far has not succeeded in getting approval to do so from the state Health Department.
Aetna's stock has fallen from a 52-week high of 99 on concerns that the company isn't integrating acquisitions and controlling medical costs. Donaldson, former chief executive of the New York Stock Exchange, said Aetna has started an ``urgent review'' of its businesses and strategy.
``This is the first step,'' said John Schneider, a fund manager at Pimco Equity Advisors whose fund owns 450,000 Aetna shares. ``They need to recognize the value of the three pieces (of the company), particularly the international.''
Shares of Aetna, which rose slightly on news of the resignation, closed up 18.75 cents at $40.75 on the New York Stock Exchange.
Donaldson was named chairman, president and chief executive at a scheduled board meeting Friday. Aetna said it revoked a company rule that mandated retirement for executives at 65.
``Mr. Donaldson does not view his job as interim,'' said Joyce Oberdorf, an Aetna spokeswoman. ``The board has asked him not to approach this job as a caretaker.''
Huber, who had said he didn't think Aetna's share price accurately reflected the company's value, resigned amid pressure from shareholders to do something to reverse the stock decline. Before the resignation, some shareholders said the company needed to consider spinning off or selling some major business lines, possibilities Aetna had considered previously.
``This stock price is the same as it was in 1981,'' Schneider said. ``This is an incredibly, incredibly cheap stock.''
Analysts said, though, that the company needs to focus on getting its health-insurance operations under control. Aetna shares fell Feb. 8 after it said fourth-quarter medical costs had risen faster than analysts expected, driven up by drug cost increases and medical claims left over from the third quarter.
Aetna also faced a review by the U.S. Securities and Exchange Commission of the accounting it used for acquisitions during the past three years. That time period included Aetna's $8.9 billion purchase of U.S. Healthcare Inc. in 1996, the $1.1 billion purchase of New York Life Insurance Co.'s health-insurance unit in 1998, and last year's $1 billion purchase of Prudential Insurance Co. of America's managed-health unit.
``They need to stop focusing on being bigger and start running their business better,'' said Todd Richter, a Banc of America Securities analyst with a ``neutral'' rating on Aetna. ``This is a company that has performed poorly for 20 years through three management teams.''
Other shakeups are going on in the health-insurance industry as companies try to stay ahead of medical-cost increases being pushed up by new technology, new drugs and an aging population. Huber's resignation comes weeks after PacifiCare Health Systems Inc. chief executive Alan Hoops said he would retire from the Santa Ana, Calif.-based health insurer.
PacifiCare shares lost about one-third of their value in the last year, amid concerns that the company hadn't compensated for reduced growth in payments from Medicare, the government health plan for the elderly. PacifiCare is the biggest operator of health-maintenance organizations serving Medicare members.
Also earlier this month, Humana Inc., the second-biggest operator of Medicare HMOs, named senior vice president Michael McCallister president and chief executive of the Louisville, Ky.-based company. The appointment came about six months after Gregory Wolf, then the president and chief executive, resigned in the wake of a plunge in Humana shares following a profit warning last April.
Aetna, in contrast, has gone outside the managed health care insurance industry for its new chief executive. Donaldson helped found Donaldson, Lufkin & Jenrette in 1959 and was appointed U.S. undersecretary of state in 1973. He helped found Yale University School of Management in 1975 and served as its first dean until 1980.
Huber, who joined Aetna in 1995, also came from outside the managed-care industry.
Before joining Aetna, he was president and chief operating office at Grupo Wasserstein Perella, a Latin American unit of investment bank Wasserstein Perella & Co. He also worked at Continental Bank NA in Chicago, Chase Manhattan Corp. and Citicorp.
Huber became president and chief executive of Aetna in 1997 and was named chairman in 1998. He stood out in the managed-care industry, thanks to a history of sometimes inflammatory comments, analysts said.
Last July, Aetna and Huber were sued for allegedly defaming an attorney who had just won a record $120.5 million verdict against the company's California subsidiary.
``You had a skillful ambulance-chasing lawyer, a politically motivated judge and a weeping widow,'' Huber was quoted as saying after the verdict.
Huber subsequently apologized for the remarks, and in November, Aetna won dismissal of the defamation suit in court.
Business writer Claire Hughes contributed to this report.
