PacifiCare Executives Could Receive About $230M From UnitedHealth Merger

Thirty-nine PacifiCare Health Systems executives would share nearly $230 million if the company is acquired by UnitedHealth Group, according to documents filed with the state on Monday, the Los Angeles Times reports. The compensation largely would be in the form of stock options (Vrana, Los Angeles Times, 8/2).

Minnesota-based UnitedHealth on July 6 announced plans to acquire California-based PacifiCare for $9.2 billion in cash, stock and assumed debt.

The acquisition, which requires shareholder and regulatory approval, would provide UnitedHealth with access to the 716,000 PacifiCare members enrolled in Medicare plans and the 2.5 million members enrolled in commercial plans in California, Washington state, Oregon and Nevada. The acquisition would increase the membership of UnitedHealth, the second-largest health insurer in the nation, to 25 million (California Healthline, 7/11).

In their filings to the state, the companies said that PacifiCare executives would share $215 million in company stock options previously granted by the company that would vest immediately. Nearly 700 additional employees would receive $59 million in stock options.

The deal also includes $14.5 million in "change in control" payments to the PacifiCare executives. This type of payment "sparked controversy" last year when Indiana-based Anthem acquired California-based WellPoint Health Networks, according to the Times.

An additional $84.5 million in signing bonuses and UnitedHealth stock would be awarded to PacifiCare executives if they continue working with the new company, according to the documents.

State regulators last week said that their review of the acquisition would pay particular attention to compensation for executives.

Cindy Ehnes, director of the Department of Managed Health Care, said, "We will do everything within our power to make sure the compensation isn't excessive" and does not result in higher premiums.

Jerry Flanagan, spokesperson for the Foundation for Taxpayer and Consumer Rights, said, "When HMO executives receive hundreds of millions of dollars of cash and stock, patients will invariably be asked to pay more for less care."

Scott Adelson, a senior managing director and co-head of investment banking at Houlihan Lokey Howard & Zukin, said, "It's easy to look at the numbers in hindsight and say, 'Wow, why are these guys making so much?" Adelson added, "But here was a company that was in trouble and they got granted options and other bonuses to attract and retain good people" (Los Angeles Times, 8/2).