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Aetna CEO resigns
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February 25, 2000: 4:18 p.m. ET
DLJ co-founder William Donaldson appointed to head beleaguered insurer
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NEW YORK (CNNfn) - The head of beleaguered health insurer Aetna Inc. resigned Friday amid mounting shareholder dissatisfaction about its financial condition.
Chief Executive Officer Richard L. Huber will be succeeded by William Donaldson, co-founder of the investment bank Donaldson Lufkin & Jenrette and an Aetna board member since 1977. Donaldson, who becomes chairman, president and CEO of Aetna, is also a former chairman and chief executive of the New York Stock Exchange.
Huber's resignation came as Aetna (AET: Research, Estimates), the nation's largest health insurer, was holding a regularly scheduled board meeting to discuss strategic alternatives, including a possible proposal to sell or spin off some of the company's assets.
The company did not release any new information after the board meeting, such as whether the company is in fact eyeing the spin off of its health information Web network, InteliHealth, a four-year-old joint venture with Johns Hopkins University and Health System. Reports have circulated for several months that Aetna was considering a spin off of the online business.
Megan Murphy, an analyst with Argus Research, said that Aetna is considering the spin off of InteliHealth.
The company did not mention any such plans when announcing the management change, but Donaldson said the Aetna board was launching an immediate review of the company's strategy and operations.
In a statement, Donaldson said both he and the board "share not only pride in the company's leading position in health care and financial services, but also frustration at the recent returns received by Aetna shareholders."
"We have underway an urgent review of the company's strategy and operations and will initiate a program designed to realize our full potential for present and future shareholders," he said. "We will be focused on the performance of our businesses in a rapidly changing environment."
The news helped push Aetna shares up 9/16 to 41-1/8 in afternoon trading.
Shareholder dissatisfaction
Some shareholders had called publicly for the resignation of Huber, who was named CEO in July 1997. Investors have become increasingly impatient with Aetna's financial performance, as the stock has declined about 65 percent since the middle of 1997 amid struggles at its health care division.
The Hartford, Conn.-based company posted disappointing fourth-quarter earnings earlier this month that showed medical costs are rising faster than revenue growth. In the wake of the report, industry analysts signaled they were bearish on Aetna's 2001 growth prospects.
Edmund Kroll, a health care analyst at SG Cowen Securities Corp. who has a neutral rating on the insurer's stock, said the appointment makes sense and likely will give Aetna shares a short-term bounce.
"Rightly or wrongly, there's been a lot of dissatisfaction among shareholders as to his performance," he said of Huber. Donaldson "knows the Street and he'll be able to take the pulse of investors."
Huber, 63, joined Aetna in February 1995, becoming CEO two years later and chairman of the board in March 1998. He was scheduled to retire in November 2001, when he turns 65.
Murphy, the Argus Research analyst, said Huber may have been too brash for the insurance sector.
Aetna has transformed itself from a property-casualty insurer to a health care specialist through its acquisition of U.S. Healthcare in 1996. But since then, the Blue Bell, Pa.-based Aetna U.S. Healthcare has struggled with costs and combined operations, dragging down the company's international and financial services sectors, analysts said.
But, industry analysts expressed skepticism that such a move would help turn the company around, saying that the consumer online health care space is already pretty crowded and similar stocks have not performed well on Wall Street.
Spinning off the unit would be "a modest positive" but not "a magic elixir," Paul Goulekas, who follows Aetna for Conning & Co., said earlier Friday. "It wouldn't make me very excited."
Many investors were disappointed last month when Aetna decided not to shed its international insurance business - a move that could have netted an estimated $5 billion - after earlier indications that the company was considering such a sale.
But health care analyst Todd Richter of Bank of America Securities questioned whether the company has the financial wherewithal to shed its non-health-related businesses, saying such a move would expose the company to further risk from its poorly performing health care division.
"The risk in Aetna going forward lies in their health care business," he said. "If they sell those businesses, they are increasing their exposure to health care." 
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