- The Washington Times - Monday, October 27, 2003

One of the nation’s largest health insurers yesterday reached an agreement to purchase the region’s second-largest insurer in a $2.7 billion transaction.

Minnesota-based UnitedHealth Group Inc. will buy Mid Atlantic Medical Services Inc., the Rockville company started by a group of physicians that provides coverage for more than 1.9 million people enrolled in its health-maintenance and preferred-provider organizations.

UnitedHealth Chairman William McGuire said joining forces with MAMSI could create a company with enough leverage to lower health care costs for its customers.

“What is more important is the fact that our combination will allow us to even more effectively procure health services on behalf of our customers based at favorable rates, thus helping to further improve affordability,” Mr. McGuire said in a conference call.

UnitedHealth, which covers 18.3 million people, would become the nation’s second-largest insurer if its bid to purchase MAMSI earns regulatory approval. A proposed merger of Anthem Inc. and WellPoint Health Networks Inc., also announced yesterday, would make that combination the nation’s largest insurer.

The wave of consolidation comes at a time when a weak economy is shrinking the pool of potential customers and eliminating any chance insurers have of increasing enrollment as companies grow.

A document filed with the Securities and Exchange Commission yesterday indicates UnitedHealth and MAMSI agreed that if either firm decides not to follow through with union, it must pay a breakup fee of $116.3 million to the other company.

Mr. McGuire said MAMSI will become the regional headquarters for operations in an area from Virginia to southern Pennsylvania, and Mr. Groban will head the regional office.

MAMSI, which employs 3,500 workers, would become a wholly owned subsidiary of UnitedHealth Care. MAMSI is the region’s second-largest insurer behind CareFirst BlueCross BlueShield, which has 3.2 million members.

MAMSI will keep its name for now, and there are no plans to lay off MAMSI workers. But Mr. McGuire indicated UnitedHealth’s acquisition of the local company could lead to changes.

“What has been done very well by our respective organizations is going to continue. What has been suboptimal will be improved,” he said.

The transaction would make MAMSI Chairman Mark Groban a wealthy man. UnitedHealth will issue nearly 39 million shares of stock and pay $860 million for MAMSI.

MAMSI investors will get $18 for each share and 0.82 UnitedHealth shares for each share they own.

Mr. Groban owns 23,046 shares, and he would be paid $414,828 for his stake in the company.

He has options to buy another 943,250 shares, according to the company’s latest proxy statement filed with the SEC.

MAMSI has worked for years to become profitable. It has passed rising health care costs on to consumers by boosting premiums. Revenue from premiums for the three months that ended June 30 increased $95.8 million, or 17.2 percent, over the comparable three-month period a year ago.

“They certainly demonstrated a business acumen that is attractive,” UnitedHealth spokesman Mark Lindsay said.

Shares of MAMSI rose 10.6 percent to $59.62 on the New York Stock Exchange.

Shares of UnitedHealth fell 3.4 percent, closing at $52.40 a share on the NYSE.

About 32 percent of the people who get health insurance coverage through MAMSI work for the federal government or for state and local government agencies. UnitedHealth officials said they pursued MAMSI because of the company’s proximity to Fortune 500 companies. About 30 Fortune 500 companies have their headquarters in the Mid-Atlantic region, but UnitedHealth affiliates insure workers at just one.

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