Timing is everything.
It now seems lucky for shareholders that Cypress-based PacifiCare Health Systems Inc.’s acquisition by UnitedHealth Group Inc. closed six months ago,and not amid UnitedHealth’s run of recent bad news.
At least it’s lucky for shareholders who have cashed out.
Last summer, Minnesota-based UnitedHealth offered $8.1 billion to buy PacifiCare, including $2.2 billion in cash and 112 million shares.
UnitedHealth’s stock was trading at around $53 on July 6, the day the news broke.
With a lot of regulatory scrutiny, it took a while for the acquisition to close. And the value of the deal puffed up along with UnitedHealth’s stock price.
By December, UnitedHealth’s shares were at $62, bumping up the acquisition’s value to $9.2 billion. UnitedHealth wrapped up the buy just before Christmas.
It would be a different story if the deal went down today. With accounting and stock options issues at UnitedHealth, the health insurer’s stock has torpedoed in recent weeks, to $44 at recent check.
If UnitedHealth were to buy PacifiCare today, the deal only would be worth $7.1 billion, off 30% from December’s valuation.
This isn’t all just theoretical. PacifiCare shareholders who traded their shares for UnitedHealth’s stock are feeling the sting.
They include former chief executive Howard Phanstiel, now a UnitedHealth executive vice president. Before the deal, he owned about 70,000 PacifiCare shares and had options to another 1.7 million. He was granted 150,000 UnitedHealth shares as part of the deal and saw his options vest.
In December, the stake was worth about $120 million (before the cost of exercising options). Today, the stake has a market value of about $85 million.
Earlier this month, UnitedHealth said it received a subpoena from the U.S. Attorney for the Southern District of New York and a document request from the Internal Revenue Service concerning a probe into stock options.
UnitedHealth said earlier it might have to restate its earnings by $286 million for the past three years after discovering “a significant deficiency” in how it administered and accounted for past executive stock options grants.
UnitedHealth also faces a federal lawsuit from five public pension funds that are seeking to stop Chief Executive William McGuire and Chief Operating Officer Stephen Hemsley from exercising options.
Nichols’ Parent: $185M Buy
Quest Diagnostics Inc., the New Jersey laboratory testing company that operates Quest Nichols Institute Diagnostics in San Juan Capistrano, is spending $185 million to buy Focus Diagnostics Inc., which tests for infectious diseases.
Focus is based in Herndon, Va., a Washington, D.C. suburb, but its main operation is in Cypress, where it has 350 workers.
The deal is expected to close in the third quarter.
Credit Suisse First Boston’s DLJ Merchant Banking and the Sprout Group, a pair of private equity firms, own Focus.
The company offers testing services to large academic medical centers, hospitals and commercial laboratories. Focus is known for introducing tests for Lyme disease, West Nile virus and severe acute respiratory syndrome, or SARS.
Quest Nichols Institute is known as the “laboratory’s laboratory.” It runs complex genetic tests that give doctors clues about cancers, hepatitis C and the HIV virus. Some 1,250 people work at Nichols’ campus off Ortega (SR-74) Highway, near the Cleveland National Forest.
UCI Gets Surgical Chief
The University of California, Irvine, has hired a chairman of surgery.
David Hoyt, who now runs the University of California, San Diego’s trauma, burn and surgical division, starts his UC Irvine job July 1.
He’s going to oversee surgical services and training at UCI, including at UCI Medical Center in Orange and the hospital’s burn center.
Hoyt replaces Michael Stamos, a UCI professor who had been interim surgical chief since early 2005.
Hoyt, 56, started his career at UC San Diego Medical Center as a surgical resident in 1976 and joined the school’s faculty in 1984. He moved into trauma medicine as a director of the hospital’s surgical intensive care unit.
In 1995, Hoyt was appointed professor of surgery. His career at UCSD includes serving as chairman of the university’s board of governors from 1998 to 2002.
Hoyt received his medical degree from Case Western Reserve University in Cleveland.
His appointment is the latest of several changes in UCI’s medical leadership this year.
Thomas Cesario, the School of Medicine’s veteran dean, said earlier this month that he would step down from the post he’s held for the past 12 years.
Ralph Cygan stepped down as chief executive of UCI Medical Center in January, in the wake of a scandal around the teaching hospital’s liver transplant program.
UCI closed the liver program after regulators pulled its certification because of mismanagement and poor care. More than 30 patients died while awaiting transplants.
Bits and Pieces:
Speaking of UCI, the university’s Henry Samueli School of Engineering hosted “California: Prosperity through Technology,” a look at how engineering and medicine are coming together, at the Arnold and Mabel Beckman Center, earlier this month. Topics covered included ophthalmology research, engineering applications for neuroscience and rehabilitation and implantable medical devices. William Link, a Newport Beach-based managing director at Versant Ventures who helped establish UCI’s biomedical engineering department, was among several program honorees Toshiba America Medical Systems Inc., Tustin, donated one of its Nemio ultrasound systems to the Partners for Healing clinic in Tullahoma, Tenn., as part of the “Live with Regis and Kelly” show. The clinic provides free medical care to working uninsured people who live in middle Tennessee. Toshiba America Medical was one of three Toshiba business units that donated some $80,000 worth of equipment to the clinic.
