FHP apparently has snared TakeCare, but only after the Fountain Valley, Calif.-based HMO sweetened the purchase price by 30%, creating a $1.1 billion deal.
On March 4, the companies said they signed a definitive merger agreement in which FHP would pay $1.1 billion, or $80 per share, to buy Concord, Calif.-based TakeCare, which operates health plans in four states covering 770,000 enrollees.
FHP in January offered $829 million, or $62 per share, for TakeCare, but a group of dissident shareholders objected to the deal because it involved cash.
Jack Anderson, TakeCare's chairman, said the boards of both companies unanimously supported the latest proposal. The merged company will have 1.6 million enrollees and annual revenues exceeding $3.25 billion.
The deal is structured as 35% cash, 15% FHP common stock and 50% FHP convertible preferred stock with an annual dividend from 4.7% to 5% and a conversion premium of 24%.
The agreement came after United HealthCare Corp., Minnetonka, Minn., said it was no longer interested in purchasing TakeCare. United earlier had offered to buy TakeCare in a transaction involving only stock. That deal was valued slightly higher than FHP's original bid but failed to win approval of a majority of TakeCare's board.
FHP sought the merger to solidify its market position in Northern California as part of a trend by large HMOs to become statewide providers. FHP is among the country's largest Medicare operators, but most of its enrollment is in Southern California. Besides California, FHP also has operations in Arizona, Colorado, Nevada, New Mexico, Utah and Guam.
Industry observers speculated that United was interested in TakeCare chiefly because of its Colorado operations. TakeCare's Denver-based plan is the largest HMO in the state with 320,000 enrollees. TakeCare also operates in Illinois and Ohio.
United, which has a strong Midwestern base, has recently begun to move into the Southeast with acquisitions in Alabama and Florida. It doesn't have any operations west of the Mississippi River.