UnitedHealthcare (UNH) to Acquire Health Net's (HNT) Northeast Licenses and Rights to Renew Membership For $290M

July 20, 2009 5:59 PM EDT

UnitedHealthcare, a UnitedHealth Group (NYSE: UNH), and Health Net, Inc. (NYSE: HNT) today announced that UnitedHealthcare has agreed to acquire Health Net of the Northeast's licensed subsidiaries and will work with Health Net to renew the customers currently enrolled in those plans with UnitedHealthcare as those customers reach their annual renewal dates. The transaction, subject to regulatory approvals and other closing conditions, is expected to close within 12 months.

"We assessed several alternatives for our Northeast health plans. We concluded that a transaction with UnitedHealthcare is in the best interest of our members. UnitedHealthcare has national scale, strong local relationships, and a very broad range of products," Mr. Gellert added.

After closing, UnitedHealthcare and Health Net will work together so that members and health care professionals have full continuity of their coverage and payments during the time that the Health Net benefit policies remain in force under the existing Health Net contracts.

UnitedHealthcare will acquire Health Net's Northeast insurance and HMO entities in Connecticut, New York and New Jersey, which have approximately $450 million in tangible net equity. UnitedHealthcare will also acquire membership renewal rights for the Health Net Life health care business in the Northeast. The transaction is expected to be modestly accretive to both Health Net and UnitedHealth Group's net earnings per share. Key features of the transaction are:

• UnitedHealthcare will pay Health Net transaction consideration of $60million at close for the Medicare business, the Medicaid business and the renewal rights for the commercial membership. UnitedHealthcare will pay Health Net additional consideration on a per member basis as Health Net's Northeast commercial customers transition to UnitedHealthcare. This additional consideration could be as much as $120 million if all commercial members move to UnitedHealthcare licenses.
  
• After closing, UnitedHealthcare will transfer approximately $290 million to Health Net, representing a portion of the $450 million in tangible net equity acquired in the legal entities. The remaining portion of the tangible net equity will be distributed to Health Net as the business transitions over the next two years, and is currently estimated to be approximately $160 million. Health Net will continue to serve commercial, Medicare and Medicaid members following the close of the transaction and prior to their renewal with UnitedHealthcare. Health Net currently expects to record several amounts in connection with the transaction, including tax benefits, severance costs, freed-up capital, other transaction-related costs and operating costs during the transition period. These items may result in an estimated net negative impact to Health Net of approximately $20 million.

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