It's the integrated system that disintegrated. UniHealth, a Burbank, Calif.-based healthcare organization, has shrunk so much in the past two years that one of the country's premier integrated healthcare systems has become a shadow of its former self.
Even so, UniHealth Foundation, as it is now known, has the opportunity to convert its strongest remaining asset-a 39.8% stake in PacifiCare Health Systems' Class A common stock-into the cash it needs to become a significant grant-making organization.
UniHealth holds 5.9 million shares in the Santa Ana, Calif.-based managed-care company.
UniHealth founded PacifiCare in the mid-1970s and has retained ownership of a significant portion of the company since the managed-care company went public in 1985, according to David Erickson, PacifiCare's director of investor relations.
The two agreed May 4 to PacifiCare's buyback of that common stock, which could net UniHealth about $500 million in cash by February 2001.
The deal is subject to approval by PacifiCare stockholders but appears to be unopposed, according to Douglas Mancino, a UniHealth Foundation attorney at McDermott, Will & Emery in Los Angeles. "It's pretty straightforward," he said.
UniHealth has made no secret of its desire to reinvent itself as a charitable foundation. It sold its 265,000-enrollee CareAmerica HMO to Blue Shield of California in November 1997. About a year later, it sold all of its eight Southern California hospitals to San Francisco-based Catholic Healthcare West. And for more than a year it has tried to sell its only remaining operational asset, UniMed Management Co., which manages some 6,500 physicians and nine medical groups.
"Southern California was just too big an area for them to get their arms around," said Steve Valentine, president of Camden Group, an El Segundo, Calif.-based consulting firm.
PacifiCare last week announced plans to repurchase 13% of its common stock, a move aimed primarily at liquidating UniHealth's huge holdings of the Class A voting stock. Officials said PacifiCare plans to repurchase all 5.9 million voting shares from UniHealth in seven installments linked to the stock's performance. A small number of Class B nonvoting shares are not included in the transaction. The deal also includes an initial payment of $60 million after shareholder approval.
That appears likely, since PacifiCare's stock price shot up 24%, from $74 per share to $92 per share, the day after the buyback was announced.