PacifiCare To Acquire American Medical Security Group

PacifiCare Health Systems announced Wednesday that it would buy Wisconsin-based American Medical Security Group for $502 million in an effort to expand services to the small-business and individual health insurance market, the Milwaukee Journal Sentinel reports (Manning, Milwaukee Journal Sentinel, 9/16). PacifiCare officials said the deal would add about 314,000 preferred provider organization members and increase commercial medical enrollment by 13%. Additionally, the merger would expand PacifiCare's market from eight states to 33 states and Washington, D.C. (Fulmer, Los Angeles Times, 9/16).

"We're diversifying across several fronts," PacifiCare Chair and CEO Howard Phanstiel said, adding that in the future, the company "will be able to offer a total solution to individuals and employers seeking aggressively managed health plans, as well as more loosely managed health plans." Phanstiel said American Medical is an "attractive purchase" because of its "history of innovation" by developing products like health savings accounts (Rundle, Wall Street Journal, 9/16). PacifiCare spokesperson Cheryl Randolph said the acquisition will also reduce the company's reliance on Medicare, which accounts for 48% of its revenues.

PacifiCare, the nation's largest manager of Medicare health plans, will pay American Medical shareholders $32.75 per share in cash and will assume $30.2 million in debt as part of the deal. Phanstiel expects PacifiCare's 2005 net income to be between $360 million and $375 million (Los Angeles Times, 9/16). American Medical shares on Wednesday increased by 37% to $31.91 and PacifiCare shares rose by 5.6% to $36.32 (Wall Street Journal, 9/16).