Southern Cross clear to take over Aetna

By DANIEL RIORDAN

Southern Cross Healthcare can have it all after withstanding a legal challenge from the Commerce Commission over its acquisition of Aetna Health.

The Court of Appeal has dismissed the commission's appeal against a High Court ruling in March that the consumer watchdog had erred in blocking Southern Cross' full takeover of its rival.

It was a majority decision, supported by two of the Appeal Court's three judges.

Details of the judgment will not be made public until the two parties have edited commercially sensitive material. Counsel have until January 15 to advise the court what material needs to be edited. Those changes will then be made before the judgment is released.

Southern Cross, the country's biggest health insurer, last year needed three attempts, and an undertaking to divest Aetna's medical insurance policies, before the market watchdog gave it clearance to buy Aetna.

The commission was worried that Southern Cross would acquire too much market dominance.

But it was prepared to allow Southern Cross to acquire Aetna's primary healthcare business and its advanced computer systems.

However, the High Court ruled in March that the commission had erred in blocking the full takeover, saying the overwhelming market share Southern Cross would gain would be offset by low barriers to market entry, and that the commission had defined that market too narrowly. The setback was the commission's first in its key domain of business acquisitions in almost a decade.

The Appeal Court hearing ended three weeks ago.

Southern Cross chief executive Roger Bowie welcomed the decision.

"This is good for Aetna policyholders and it's good for Southern Cross. It's been a long period of uncertainty but that's now behind us."

Nothing would change in the near future for Aetna policyholders, as the integration of the two companies' customer bases would not begin immediately.

Mr Bowie acknowledged that Southern Cross' problems bedding in Aetna's computer system had put the company behind in paying out claims, but he said those problems were being addressed.

He said the company was financially sound, with seven months of claims in reserve, six of them in cash. Standard & Poor's had confirmed the company's AA minus rating.

The commission had no comment to make on the Appeal Court's decision.