An investor in Universal American Corp. has sued the insurer, alleging the company fails to give stockholders adequate compensation in its proposed $800 million acquisition by WellCare Health Plans.
Paul Parshall, a Universal American investor who filed the suit Jan. 27 in U.S. District Court of Delaware, claims the all-cash deal doesn't fairly compensate stockholders based on the expected cost-savings. By 2019, WellCare projects to save $25 million to $30 million as a result of the acquisition. WellCare will pay stockholders $10 per share for Universal American.
Parshall also claims the deal underestimates the current value of Universal American. The proposed total price for Universal American's shares is approximately $600 million, but after factoring in Universal American's debt and retirement of preferred shares, the deal is worth about $800 million.
Stockholders must approve the transaction in order for it to go through.
A request for comment from Universal American was not returned.
The lawsuit also takes issue with a proxy form filed Jan. 17 by Universal American, calling it “false and misleading” because it omits information pertinent to stockholders regarding the proposed acquisition by WellCare.
In its proxy, Universal American didn't disclose financial projections after the transaction including revenue, expenses, tax attributes, merger and acquisition activity and stock-based compensation expenses, the suit claims. This information is necessary for stockholders to project the future performance of the company.
In addition, the lawsuit alleges that the proxy fails to provide potential conflicts of interest in the deal. Specifically, the proxy doesn't provide information about future employment and leadership at Universal American following the close of the acquisition, which is expected by the end of the second quarter of 2017.
Finally, the lawsuit alleges the proxy doesn't offer sufficient background information on the proposed acquisition, particularly the reason why Universal American executives went through with the deal.
Experts say the acquisition, which was announced in November 2016, will strengthen WellCare's investment in Medicare Advantage. About 70% of Universal American's 114,000 Medicare Advantage members are in plans with four stars. WellCare doesn't have any four-star Medicare Advantage plans. Plans with four stars or more earn bonuses from the federal government.