PacifiCare to buy American Medical for $502 million

Wednesday, Sept. 15, 2004 | 11:03 a.m.

BLOOMBERG NEWS

GREEN BAY, Wis. -- PacifiCare Health Systems Inc., the biggest manager of U.S. Medicare health care plans and a major insurer in Nevada, said it agreed to buy American Medical Security Group Inc. for $502 million to expand its customer base by more than 13 percent.

Shareholders of Green Bay, Wis.-based American Medical will get $32.75 a share in cash, PacifiCare said. That's a 41 percent premium on yesterday's closing price of $23.24. PacifiCare, based in Cypress, Calif., also will assume about $30.2 million of American Medical's debt.

The acquisition increased the company's 2005 net income forecast to $360 million to $375 million, more than the $350 million to $360 million forecast earlier, PacifiCare said. PacifiCare also will gain 314,000 new members, health savings accounts and group life insurance offerings.

In the Las Vegas Valley, PacifiCare insured 36,000 people as of June 30.

"It's a very smart move by management" at PacifiCare, said Patrick Kaser, a senior analyst for Brandywine Asset Management, which owned about 650,000 shares of PacifiCare as of June, according to Bloomberg data. "They're buying a company with commercial expertise they didn't have, and it gives them a nice geographic footprint from which they can expand their Medicare Advantage business."

The company in June confirmed an April forecast for 2004 net income of $296 million to $306 million.

American Medical has about 1,400 employees and provides insurance coverage in 33 states and Washington, D.C., through more than 32,000 independent agents. The company's Chief Executive Samuel V. Miller and his management team will continue to lead American Medical after the acquisition, according to a company statement. American Medical had $744 million in revenue last year.

The deal also "will help us to continue to diversify the company by creating a better balance between our commercial and Medicare businesses," PacifiCare Chief Executive Howard Phanstiel said in a statement.

"We think of our individual medical business as our growth engine" after group-coverage customers led membership losses in recent years, Miller said in a conference call with analysts.

PacifiCare expects the purchase to be completed by early 2005. It's still subject to approval by American Medical shareholders and the departments of insurance in Wisconsin and Georgia.