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Goldman Suit Reveals Robust Health Care Deals: Street Whispers

Stocks in this article: CVH AET UNH AGP WLP

NEW YORK ( TheStreet) -- Although Aetna's (AET) newly unveiled $5.7 billion deal for Coventry Health Care (CVH) is dominating headlines, WellPoint's (WLP) $4.9 billion July acquisition of Amerigroup (AGP) and a subsequent lawsuit involving Goldman Sachs (GS) may give investors a better sense of the sector's deal heath.

A lawsuit filed by the Louisiana Municipal Police Employees Retirement System (LMPERS) alleges that Goldman Sachs was financially motivated to sell Amerigroup quickly, favoring an expedient deal with WellPoint on July 9 over more lucrative bids that could have fetched shareholders a greater price than the final $92 a share deal, which came at a 43% premium to the trading price.

LMPERS is asking that Delaware court block the deal and re-open Amerigroup's sale process because it alleges Goldman Sachs made it hard for competing bidders to WellPoint to enter deal negotiations. The suit highlights that Goldman Sachs stood to gain up to $233 million from a warrant contract it bought if Amerigroup were sold prior to August 13.

While it is unclear how the shareholder lawsuit will unfold - LMPERS previously won a contest against Goldman in its advisory role on El Paso's (EP) sale to Kinder Morgan (KMI) and was the first to sue JPMorgan (JPM) for a trading loss that stands at $5.8 billion - the details of the legal contest show how hot the healthcare sector's deal fortune has become as bidders swarm around quality deals.

In the suit, LMPERS notes that an unnamed 'Company D' was willing to pay more to Amerigroup shareholders than WellPoint's $4.9 billion takeover offer, and that other suitors "E", "F" and "G" also held deal talks, signaling widespread interest. The lawsuit also shows that M&A efforts were underway in 2011, well before there was any certainty over whether the Supreme Court would let the Act stand.

"Beginning in December 2011, several suitors expressed unsolicited interest in entering a potential strategic transaction with Amerigroup," alleges LMPERS in its suit. In February, "Company D" met with Amerigroup's chairman and chief executive James Carlson about a deal and in March, companies E, F and G also held discussions with Carlson to "the foundation for future strategic transactions," the suit notes.

LMPERS' suit against Goldman alleges that despite seemingly widespread acquisition interest in Amerigroup, the company's board, at the advice of Goldman and co-financial advisor Barclays (BCS), decided on June 7 to enter into exclusive negotiations with WellPoint. While LMPERS alleges that the exclusivity agreement came before "adequately exploring the level of interest from the other suitors," it also highlights that Amerigroup's preference of WellPoint's bid was driven by the regulatory risks that would come with "Company D's" higher priced offer.

Those allegations signal that although Aetna and WellPoint are among the largest healthcare providers in the nation, larger suitors may yet be in the cards. Currently, UnitedHealth Group (UNH) has a market cap of near $55 billion, trumping WellPoint's $18.6 billion market cap and the $12.71 billion of Aetna. Cigna and Humana also have market caps above $10 billion.

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