When Woodland Hills, Calif.-based Health Systems International and Rancho Cordova, Calif.-based Foundation Health Corp. issued their merger proxy last January, they estimated they would spend between $175 million and $225 million for merger-related expenses.
The actual figure Foundation Health Systems, the company that resulted from the merger, announced late last week was more than 50% higher, totaling $348.4 million in charges for the second quarter ended June 30. Additional charges unrelated to the merger will bring the total to $405.9 million. The company will release complete quarterly financial data this week.
"We have had the opportunity to comprehensively review the impact of the merger on the company's ongoing operations," said Malik M. Hasan, M.D., FHS' chairman and chief executive officer, in a statement. "After this review we determined several categories of these charges needed to be expanded to reflect both the realities of the businesses and our long-term goals."
As a result of the write-offs, FHS spokesman Kurt Davis said, the company would be more focused and efficient.
"We're trying to be as thorough as possible," he said, noting the additional charges are related to switching to new information systems that would serve the company more appropriately, disposal of real estate in order to combine more office space and other miscellaneous charges.
Along with the merger-related write-offs, two properties Foundation Health brought into the deal are being shed. They include Gem Insurance Co., a Salt Lake City-based company that writes indemnity and PPO coverage for about 120,000 beneficiaries, and Foundation Health Unlimited, Foundation Health's United Kingdom operation. FHS said it will take a $57.5 million charge to reinsure Gem, which has experienced severe losses. Its reinsurer-whose name has not been divulged-will take over Gem's operations. Foundation Health Unlimited will be sold to its current management for a undisclosed sum.