FOUNDATION HEALTH/HEALTH SYSTEMS: ANNOUNCE MERGER PLANS
"In the latest merger of health care giants," FoundationThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
Health Corp. and Health Systems International Inc. announced
yesterday that they will form a "single California-based company
currently valued at $3 billion." The two for-profit companies
said the deal was "a merger of equals." Under the agreement, the
companies "would consolidate all of their HMO operations in
California" under Health System's Health Net plan. Foundation
and Health Systems "would not disclose how the merger would
affect members' choice of doctors, premiums or coverage." The
combined company, to be called Foundation Health Systems Inc.
(FHS), would have revenues of more than $8 billion in 1997,
according to the companies. The merger would create the fourth
largest publicly traded HMO in the U.S., serving about 5 million
members in 14 states.
A BIG MOVE: Under the deal, which is subject to both
shareholder and regulatory approval, Health Systems Chair and CEO
Malik Hasan will become chief executive of the merged company
(Howe, SAN FRANCISCO CHRONICLE, 10/2). Daniel Crowley,
Foundation's chair, president and CEO, will become chairman of
the new company, "but will relinquish that post to ... Hasan
after a year." Health System President and COO Jay Gellert will
become executive vice president and COO of the new company.
Foundation will control six of the 11 seats on the combined
company's board. Crowley said, "This transaction represents a
unique opportunity to build value for both companies' members,
providers, employer groups, and in turn, shareholders fare beyond
what either Foundation or Health Systems could have achieved
independently" (Rundle/Lipin, WALL STREET JOURNAL, 10/2). Hasan
said, "The new company will have highly complementary strengths.
The transaction will immediately establish FHS as a major
national player, with strong market positions in California and
the West and rapidly growing operations in Texas, Florida and the
Northeast" (Brooks/Olmos, LOS ANGELES TIMES, 10/2).
RESULTS: CHRONICLE reports that Foundation is based in
Rancho Cordova, CA, and Health Systems has its main headquarters
in Pueblo, CO, with a secondary headquarters in Woodland Hills,
CA. Upon completion of the deal, one of the three headquarters
would be closed (10/2). The companies would not say how many
jobs would be eliminated as a result of the consolidation.
However, they are anticipating $110 million in savings during the
first year following the merger and "as much as $150 million in
the second year" (Gilpin, NEW YORK TIMES, 10/2).
IS BIGGER BETTER?: JOURNAL reports that the merger
announcement "comes less than two months after the unveiling of"
a merger "between two other big California" HMOs: PacifiCare
Health Systems Inc. and FHP International Corp. Margaret
Stanley, assistant executive officer in charge of health benefits
for the California Public Employees' Retirement System (CalPERS),
said, "If these two mergers go through, there will be three
health plans, including Kaiser Permanente, covering 80% of
CalPERS' one million members" (10/2).