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Goldman Sachs Readies Bayou Battle: Street Whispers

Stocks in this article: GS AGP WLP AET CVH

In its newest case against Goldman, LMPERS is asking that a Delaware court block the deal and re-open Amerigroup's sale process because it alleges advisors were happy to go along with exclusive WellPoint deal negotiations, amid a feeding frenzy of strategic healthcare M&A interest.

The suit alleges that Goldman Sachs stood to gain up to $233 million from the warrant contract if Amerigroup were sold prior to August 13, potentially causing the investment bank to focus on the expediency of a deal over price, in a conflict that's reflected in deal proceedings.

In August, Aetna's (AET) $5.7 billion deal for Coventry Health Care (CVH) signaled that industry giants are opening their purse strings in a post- Affordable Care Act industry reshuffle.

The question is whether Goldman failed to capitalize on industry M&A hunger for Amerigroup leading up to the Supreme Court's confirmation of the Act in June. Also at question is whether Amerigroup's board acted in the interest of shareholders in picking Goldman as its investment banker, in spite of clear conflicts that could outweigh it's advice as a longtime underwriter.

As with El Paso, Goldman was picked in-spite of conflicts only after a second banker joined in financial advisory work, Morgan Stanley (MS) in the former instance and Barclays (BCS) in the latter.

While Goldman and Amerigroup decline to comment beyond existing filings and haven't yet filed a court response to LMPERS allegations, the fund's suit already raises questions about conflicts and the overall due diligence in selling the company.

In the suit, LMPERS notes that an unnamed 'Company D' was willing to pay more to Amerigroup shareholders than WellPoint's initial takeover offer and that other suitors "E", "F" and "G" also held deal talks, signaling widespread interest.

Meanwhile an independent assessment on Goldman's $233 million payday given by law firm Skadden, Arps, Slate, Meagher & Flom and co-advisor Barclays - disclosed in an Amerigroup proxy statement - was ineffectual, according to LMPERS.

The assessment cleared Goldman's prospective conflicts because a deal would need to close before Oct 22 for the bank to see any of the millions tied to its existing financial contracts. After Aug 13, the $233 million figure would fall with each passing day.

As Skadden and Barclays took presentations of potential conflicts in March of 2012, M&A interest in Amerigroup was already more than evident. In fact, according to LMPERS' suit, a bidding war looked to be in the cards.

"Beginning in December 2011, several suitors expressed unsolicited interest in entering a potential strategic transaction with Amerigroup," notes 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," LMPERs adds.

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