UNITED HEALTHCARE: Humana Deal ‘Collapses’
In the aftermath of Thursday's announcement that United HealthCare Corp. was taking a $900 million charge, the proposed merger of Humana Inc. and United HealthCare Corp. "collapsed over the weekend," the Wall Street Journal reports. United HealthCare's $2.9 billion drop in stock value after the restructuring charge "sharply lessened the value of the deal to Humana shareholders." After United Healthcare "blindsided Wall Street" and the subsequent 28% drop in stocks on Thursday, followed by a 4.1% drop on Friday, shareholders of Kentucky-based Humana would have received only $3.12 billion of United HealthCare stock -- versus the original $5.5 billion. Stephen Hemsley, senior executive vice president of Minnesota-based United HealthCare, announced that both companies "mutually decided to terminate our plan of merger," but indicated that a merger might be possible in the future. "Never say never," he said. "There still continues to be the long-term strategic merit" of a United-Humana merger.
A 'Future-Looking' Charge
United HealthCare's restructuring charge "dealt with job cuts, the sale of various businesses, and the surprise revelation that United HealthCare was unprofitable in several of its Medicare HMO plans." The Wall Street Journal reports that investors were surprised to learn that United "was either unprofitable or barely squeaking by in 35 Medicare HMO plans around the country," after the company's recent success at "weather[ing] financial storms." United has recently cut back "prescription drug benefits offered to senior citizens in several of those plans," trimmed marketing, and is renegotiating pay rates with doctors and hospitals. Although Hemsley called the restructuring charges "future-looking," managed care analysts note that after last week's performance, "it would take four quarters at least of solid earnings ... before the company could win favor again" (Burton, 8/10).