With its planned acquisition of Oxford Health Plans Inc., UnitedHealth Group is turning its focus on boosting insurance enrollment to the more than 90 Fortune 500 companies in Connecticut, New York and New Jersey, company officials said.
The economy in the tri-state area was hit hard by the 2001 terrorist attacks and the economic downswing that followed.
“This region is the most opportunity-rich market on Earth, and Oxford has never been in a position to utilize it,” said Stephen Hemsley, United Health’s president and chief operating officer.
The merger, subject to regulatory and shareholder approval, would strengthen one of the largest nation’s health insurers. Trumbull, Conn.-based Oxford provides health insurance services for approximately 1.5 million people, mostly in New York City, northern New Jersey and southern Connecticut. UnitedHealth, based in Minneapolis, serves about 20.2 million customers.
“We believe this is an opportunity which will provide greater choice to current customers of Oxford and United,” UnitedHealth spokesman Mark Lindsay said. “Both of them have access to Oxford’s superior services and United’s national network.”
The company expects to keep using the Oxford Health brand after completing the stock and cash deal worth about $4.9 billion.
Hemsley said the company expects to save $80 million to $100 million in operating costs beginning in 2005. He said the company would spend roughly $20 million on the combination, mostly in 2005.
The deal, once completed, should add 16 cents per share to UnitedHealth’s earnings, said Dr. William McGuire, chairman and chief executive officer of UnitedHealth. McGuire added that he does not expect major layoffs as part of the merger. The company was not specific on any job cuts that were planned.
Robert Mains, an analyst with Advest Inc., said the merger should be positive for UnitedHealth, but not without some risks.
“I think the biggest risk I can see is the timing of it is such that the deal will not close probably until most of the negotiations for 2005 year renewals will be completed,” Mains said. “I think that is going to be a bit tricky because they’re going to have to be negotiating as two separate entities until the deal is completed.
“I think the risk is that there’s going to be some enrollment attrition,” he said. “But the upside is that you just do the math of what they’re going to be paying and there’s earnings accretion right off the bat, and then there should be more from their ability to enhance revenues and reduce costs more than they would otherwise.”
The move comes less than a week after Oxford ended talks concerning a possible acquisition by WellChoice Inc., the parent company of New York area Empire Blue Cross and Blue Shield insurance.
The merger of Oxford and UnitedHealth is expected to be completed during the fourth quarter of this year.
The deal includes UnitedHealth’s purchase of approximately 54.7 million shares of Oxford and $1.4 billion in cash.
Both companies informed the state about the merger Monday, Connecticut Insurance Commissioner Susan Cogswell said. The commission is required to hold a public hearing before finalizing the deal, she said.
Because Oxford’s customer base is limited, the state isn’t concerned the merger would create a monopoly, she said.
“They have different types of business, therefore you’ll have one entity providing a wide range of services,” Cogswell said.
The Oxford merger is one of a handful of UnitedHealth’s recent acquisitions.
On April 3, UnitedHealth acquired Wisconsin-based Touchpoint Health Plan and its 137,072 customers for $40 million.
UnitedHealth also made a $500 million cash acquisition in November of Indianapolis-based Golden Rule Financial Corp., which offers financial services, life insurance, health insurance and medical savings.
And in October, UnitedHealth paid $2.95 billion for Mid Atlantic
Medical Services Inc. in a deal that gave the combined company a
leading position in the mid-Atlantic region.
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