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Insurer back in buyout game

UnitedHealth, after a year dealing with an option scandal, agrees to acquire a Nevada firm.

March 13, 2007|From the Associated Press

MINNEAPOLIS — UnitedHealth Group Inc. got back in the acquisitions game Monday, agreeing to buy Nevada's largest health insurer, Sierra Health Services Inc., for about $2.6 billion.

The purchase puts UnitedHealth in a fast-growing region and is its first health insurance acquisition in more than a year. The nation's second-largest health insurer has been embroiled in a stock option scandal -- finishing a major restatement just last week -- and has been kept busy as the largest provider of the new Medicare prescription drug benefit.

"United's hanging out the 'Open for Acquisitions' sign," said Donald Light, an analyst at financial research and consulting firm Celent. "They hope and believe they've got the stock options mess behind them."

Light said Sierra was in a good market and was well-managed. The Las Vegas-based insurer has 310,000 members in employer-sponsored plans in Nevada and an additional 320,000 people in plans for retirees and government workers.

Besides adding traditional employer health plans, UnitedHealth will be able to sell them new offerings such as health savings accounts, said Piper Jaffray analyst Melissa A. Mullikin.

UnitedHealth bought out several regional health insurers in recent years, including Oxford Health Plans and Mid Atlantic Medical Services in 2004 and PacifiCare Health Systems in 2005. But it took a break after buying John Deere Health Care for $500 million in February 2006.

The next month, questions about UnitedHealth's stock option practices plunged it into a year of turmoil that led Chairman and Chief Executive William McGuire to step down at the end of 2006. The purchase of Sierra would put UnitedHealth into one of the nation's fastest-growing regions. Nevada's population grew almost 21% in the last five years to about 2.4 million, according to the Census Bureau. The national average was 5.3% during that period.

Sierra Health posted 2006 profit of $140.5 million on revenue of $1.72 billion.

UnitedHealth said it would pay $43.50 in cash for each Sierra share, which represents a 21% premium over Friday's closing price. Mullikin said that by paying cash instead of issuing new shares, UnitedHealth avoided diluting its current shares and showed that it could afford a purchase and still maintain its share buyback plans.

UnitedHealth reiterated its plan to buy back as much as $4.5 billion in stock this year. In 2006, it made $4.16 billion on revenue of $71.54 billion.

Sierra shares rose $5.67, or 15.8%, to $41.57. UnitedHealth shares rose 27 cents to $53.27.

Minnetonka, Minn.-based UnitedHealth expects the transaction to close by the end of 2007.

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