Wednesday, July 06, 2005

Hit #52

Pacificare Health (PHS) is being acquired by United Health in a cash and stock deal valuing Pacificare at around $80/share. This offer represents a 163% premium over my average cost of $30.4/share

This deal comes after a minor lull following last year's 2 multi-billion dollar deals, one of which featured United Health as a buyer!

As a shareholder I like this deal, but as someone who has seen his premium go up (though still covering nothing at times!), this is not exactly welcome. In one of last year's deals, a handful of top executives rewarded themselves a total of half a billion dollars! The only 3 states left with some ability to think, California, Massachusetts and New York, did try to bring some sanity to this daylight robbery, but it had limited success. I am not expecting anything better in this deal either. If you wonder why your premiums keep going up, but is not matched with a corresponding qualitative improvement in coverage, you should watch out for compensation details that are part of this deal.

This deal will force the other 2 large players, Wellpoint and Aetna to look to bulk up now. Infact, except for the top 3, United Health, Wellpoint and Aetna, everyone is an eventual target.

The smaller players include Humana (HUM), Wellcare Health (WCG), HealthNet (HNT), Cigna (CI), Sierra Health (SIE), Molina Healthcare (MOH), Assurant (AIZ), Amerigroup (AGP), Centene (CNC). All of these are fairly valued, but are still worth nibbling at.

Molina and Sierra are attractive because of their niche markets - the former has a large Hispanic customer base, and the latter owns a big part of the Las Vegas market, the fastest growing in the entire US.

I own a few shares of Humana, Wellcare, Cigna and HealthNet, bought at significant discounts to current prices. I failed to take advantage of another buying opportunity last year when all these stocks pulled back following a Spitzer scare.

Previous hit - MBNA (#51)


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