PacifiCare, UnitedHealth to merge in $8.1 billion deal

Michelle Swafford

Thursday, July 7, 2005 | 10:55 a.m.

Michelle Swafford

PacifiCare Health Systems Inc. announced Wednesday that it is merging with UnitedHealth Group Inc. in a deal valued at about $8.1 billion.

More than 150,000 Nevadans are insured through the two companies and, according to them, would benefit from a nationwide network of physicians and hospitals that would reduce the chances of paying out-of-network fees for their health care.

Under the terms of the merger, PacifiCare would become a wholly owned subsidiary of UnitedHealth and PacifiCare shareholders would receive 1.1 shares of UnitedHealth stock and $21.50 in cash per PacifiCare share. In all, the transaction is based on a combination of 111.6 million shares and $2.2 billion in cash.

UnitedHealth said in a statement it intends to retire $1.1 billion of PacifiCare debt after the deal is completed.

Cypress, Calif.-based PacifiCare's stock price closed at $77.09 per share on the New York Stock Exchange, while Minneapolis-based UnitedHealth's stock price closed at $53.50 per share on the New York Stock Exchange.

"We believe combining UnitedHealth Group's national health service capabilities with PacifiCare's brand prominence and deep relationships in the Western United States will improve upon our nation's health care system and enable it to better respond to the needs of all Americans," PacifiCare Chairman and Chief Executive Howard Phanstiel said in a statement.

"Over the past several years, we have focused on strengthening our core operations while providing innovative new solutions to today's health care challenges," he said in a statement. "We have now reached a point where it makes sense for PacifiCare to join with a strong national partner that can help us reach the next level in leveraging technology and scale to offer a broad range of competitive products and services that improve the affordability and quality of health care."

As of March 31, PacifiCare insured 48,852 Nevadans on its commercial health plans and 25,900 seniors on its private Medicare plan, Secure Horizons. UnitedHealth insures about 82,000 Nevadans that are primarily employed with large companies.

Nationally, PacifiCare insures nearly 3.2 million people on its health plans and has 11.3 million people on its specialty plans, while UnitedHealth -- the second largest U.S. insurer -- provides coverage for about 55 million people.

The two companies say the combined companies will complement each other in providing affordable, quality health care. The deal also would enhance their business positions, which for UnitedHealth means a greater emphasis on private Medicare beneficiaries and for PacifiCare means economies of scale for its members and providers. The merger is subject to regulatory approvals -- including the Nevada Division of Insurance -- and PacifiCare shareholder approval and is expected to close later this year or early next year.

In a statement, PacifiCare said its customers and health care professionals would benefit from UnitedHealth's centers of excellence and $2 billion investment in technology advances that led to lower consumer costs and efficient claims handling.

Both companies have been involved with multiple mergers in the last year, which has increased the number of people they insure and their provider networks.