February 26, 2007 (8:10a) - Transaction
Completed
The companies announced the formal completion of
this transaction yestederday (2/25) after receiving
conditional DOJ approval.
Transaction length: 351
days.
February 5, 2007 (6:55a) - Status Report
As widely reported, Nevada Governor Jim Gibbons
has again publicly expressed his interest in this merger, spurred on apparently
by UNH's recent fines imposed in California. And again, Mr. Gibbons remains
somewhat ambiguous in his position on in continuing to resist outright
opposition to the proposed merger and instead simply encouraging the Department
of Justice to "carefully examine the potential challenges that a merger
between United Health and Sierra Health Care could create for Nevadans."
This is a somewhat hollow (if not comical) request from Mr. Gibbons, who should
be completely aware of the nature of the DOJ review in this case. It must be
assumed that the DOJ staff found these comments humorous and wholly
inconsequential to their current review.
Although the HSR process has exceeded the initial
expectations in this case, this publication continues to believe that the
bottom-line aspects of this deal will ultimately prevail. The bottom line, of
course, is that from an antitrust perspective -- if applied literally here --
this transaction should be allowed under HSR, either conditionally or with
conditions to address the Clark County overlap.
While this deal can not be directly compared to the recently
completed MEH-TPG Capital, both have a distinct
similarity: a single overlap. Granted, the overlap in this case is far more
complex and therefore requires much more deliberation on the part of the DOJ,
but the nature of this single overlap simply is not one which can not be
remedied without much difficulty. It will be stated again that the Nevada DOI's
conditions should effectively solve any potential issues for consumers and
these conditions may simply be reinforced by the DOJ as further oversight. At
the end of the day, in a situation where the overlap is geographical and
isolated such as this case, the regulatory responsibility should be primarily
that of the state regulator. That is precisely the purpose of state insurance
regulators -- the DOJ's ultimate responsibility in this case is to ensure the
UNH will not adversely affect competition on a larger scale through this and
other transactions.
In short, the DOJ delay here is considered to be a direct
result of late political and continued lobbyist participation, rather than some
unresolvable antitrust issue. The issue that exists is fairly obvious and
should not be an obstacle that can not be overcome with the conditions in place
or additional, DOJ-imposed conditions in Clark County.
A successfully completion of this transaction within the
next two months remains the current expectation.
January 4, 2007 (9:15a) - Clark County
Commission Status (Addendum)
To amend and clarify yesterday's update on the
Clark County Commission actions related to this merger, the
Commission has in fact not voted to move forward with legal action to
block the transaction. Instead, it has voted to use public funds to essentially
conduct an independent investigation into the impact of the transaction on a
single location --University Medical Center -- which provides the vast majority
of health care services to Clark County residents.
In essence, the Commission is simply attempting to lay the
groundwork for a potential lawsuit against the merger, if the legal counsel
hired to look into the matter suggests a lawsuit is viable. At this point,
given the Nevada DOI's approval and bottom line market share data, it is very
difficult to believe that any legitimate legal representative would advise the
Commission to move forward with a costly and probably futile lawsuit.
Nevertheless, the Clark County Commission remains as a
potential obstacle to completion of the merger and must be considered so until
it decides to remain a passive opponent to the transaction.
January 3, 2007 (9:25a) - Clark County
Commission Status
The
Clark County Commission yesterday voted to proceed with
efforts to enjoin this transaction via independent legal action. Specifics of
the Commission's plans going forward are currently unavailable, although it is
being reported that an attorney has been retained specifically for the attempt
to stop the merger in the Nevada Court system.
As of the entry, we have been unable to identify a single
precedent for this sort of localized attempt to prevent a merger. Nevertheless,
it remains perceived that the Clark County Commission has very little chance of
preventing this deal proceeding -- assuming DOJ consent is granted -- primarily
due to the Nevada DOI's conditional approval which the companies would
certainly use as a legal confirmation in any future litigation within
Nevada.
January 2, 2007 (11:10a) - Clark County
Commission Status (Addendum)
The
Clark County Commission will meet later today, as
yesterday was naturally a holiday.
According to a source in Clark County:
"I'm pretty sure they'll take the
procedural step of authorizing the lawsuit -- if it's later deemed necessary --
so they can be prepared for what they consider to be the worst in a DOJ
ruling."
This certainly does contradict our assessment of the meeting
posted previously, but does not alter the overall impression that the Clark
County Commission will not be the deciding factor for this transaction.
Additional details of today's Commission meeting will be
posted as they become available.
January 2, 2007 (10:45a) - Clark County
Commission Status
As of this update we have been unable to obtain
the outcome of yesterday's
Clark County Commission meeting in which legal action against
the merger was considered. We expect to obtain the details of the Commission's
decision shortly.
In general, the lack of information from the Commission is
considered a positive with respect to the merger as it seems that any action by
the Commission to attempt to enjoin the merger would be a significant news item
by now. Given that there are no updates as of yet, it is presumed that the
Commission chose not to move forward with efforts to delay or block the
proposed merger.
December 28, 2007 (10:20a) - Status
Report
Developments in this deal over the last month
have been decidedly negative, with opposition within Nevada continuing to grow
among healthcare unions and local governments. It is now being reported that
the Clark County Commission will consider filing a motion to
enjoin the merger at a public hearing next Tuesday, January 1, 2008.
At this point, there is no substantial indication that the
Commission will actually move forward with this action, but the consideration
alone is indicative of the problems the companies continue to deal with in
Clark County (aka Las Vegas). If there was ever a locality with the resources
to actually mount a legitimate legal action against a major transaction such as
this one, Clark County is certainly that locality.
While it is now clear that the companies will not be able
to complete this deal before the end of the year, the expectation of this
publication remains that the companies will be able to resolve the problems --
with the DOJ, Nevada and federal politicians, and, if necessary, the Clark
County Commission -- by offering some sort of all-encompassing remedy for the
Clark County overlap. Again, SIE already had essentially a dominant market
position in Clark County (and other Nevada areas) before the proposed merger.
Nevertheless, the perception that the merger will create a
healthcare monopoly in Clark County -- despite conditions imposed by the Nevada
DOI and likely to be imposed by the DOJ -- must be considered a significant
obstacle for the companies. The solution seems to be divesting all UNH
operations within Clark County, although this is not a simple solution in the
context of healthcare. It is impractical to expect a major entity to enter this
market without an established network in Nevada, and it is equally impractical
to expect an minor Nevada healthcare provider to adequately replace UNH. It
must be assumed, however, that the companies are currently working on some sort
of resolution to this issue, as failure to address the Clark County concerns
could very well threaten the completion of this transaction.
The bottom line from our perspective remains that UNH's
increased presence in Nevada via this acquisition will literally not
alter the healhcare market significantly from its current status. That fact,
combined with UNH's experience and abilities in overcoming major obstacles in
deals like this are the primary reasons this deal should be successfully
completed before the end of the first quarter of next year.
November 20, 2007 (1:50p) - Status
Report
It appears that the federal-level political
involvement in this deal has motivated additional state-level participation
from Nevada Governor Jim Gibbons. Governor Gibbons has contacted the Department
of Justice to request a resolution of Nevada market share issues associated
with this proposed combination. The Governor, who has seemed somewhat reticent
in directly opposing the merger throughout the regulatory processes, now claims
that a DOJ investigation into the market share aspect "is absolutely
necessary to protect the interests of Nevadans." Furthermore, his somewhat
neutral tone has now shifted decided to the negative in claiming that he now
believes the merger:
“(C)ould prove to be less than advantageous
to Nevada consumers because of the overwhelming HMO and Medicare market share
the UnitedHealth Group will control in our state.”
While it is somewhat difficult to gauge the Governor's
impact on the DOJ review at this late stage, is must be assumed that his
request will not be entirely well-received by the regulator. To suggest the DOJ
does not have a pretty solid understanding of the relevant market shares at
this stage is odd, if not completely illogical. As Governor Gibbons has shown
the inclination and ability to use this deal as a public-relations vehicle
without actually committing to opposing it, it can be assumed that the DOJ will
see the investigation request as yet another public relations action. It surely
can not be viewed at this late date as a legitimate, actionable concern.
Once again, the market share data for Nevada where this
merger is concerned is not terribly complicated: SIE has an extremely large
share in some areas; UNH has a very small market share in some overlapping
areas. The combination of the two will not significantly change the current
market conditions in Nevada.
For this reason -- along with UNH's ability to successfully
navigate through complex regulatory reviews -- conditional DOJ approval remains
expected for this deal, although the recent political involvement many delay
approval until early next year.
November 13, 2007 (11:20a) - Status
Report
This deal is now beginning to show signs of
serious problems as political concerns from the federal level have become part
of the DOJ review process. Last week, New York Congresswoman Nydia Velazquez --
the chair of the panel that heard argument on this deal in late-October --
formally wrote to the DOJ claiming that approval of this merger will set
"a dangerous precedent will be set for evaluating future health insurance
mergers across the nation."
Apparently, the AMA's efforts have succeeded in at least
obtaining federal sponsorship for its opposition to the deal, and raise the
"slippery slope" concept to a legitimate issue with respect to the
pending HSR review. This development was not seen as very likely a few months
ago when the AMA's protests were essentially limited to Nevada, which, of
course, approved the merger though the state's insurance department. Clearly,
the AMA's lobbying abilities are much stronger in the District of Columbia,
than they are in Nevada.
Ironically, Ms. Velazquez' concerns seem to actually confirm
that fact that the combination will literally not significantly change the
current healthcare landscape in Nevada, as she points out that UNH's market
shares in the relevant markets are less than 15%. This has been the bottom line
of the transaction from the outset: UNH's presence in Nevada is small, while
SIE's is larger. That is the entire rational for the merger, and the merger
simply will not altar the current markets much after the merger, as SIE already
has a dominate position in some localities.
Nevertheless, it must be acknowledged that the political
opposition exists and must be considered a step backwards in the DOJ review
process. However, this publication continues to believe that the Nevada DOI
conditional approval will ultimately serve as the deciding factor in the DOJ
review, and the federal regulatory will also issue a conditional approval for
the merger. The timing of the approval and deal close are now obviously subject
to further delays due to the current political involvement.
October 26, 2007 (10:05a) - Status
Report
As widely reported, the American Medical
Association continued its efforts in opposing this merger at yesterday's House
Committee on Small Business. The AMA offered no new information as part of its
opposition and the companies responded by re-iterating their claims that the
merger will not result in higher rates for Nevada consumers.
In essence, the House hearing served as probably the last
public venue for this deal, as there is really not much else the AMA or any
other opponent can offer at this stage. All relevant information and data
related to this potential combination should be in the DOJ's possession by now,
as should a very clear understanding of the impact of the merger. If the House
hearing offered the AMA or any other entity to come forth with new information
or input on the deal, the opponents certainly did not take advantage of it. And
perhaps this may be precisely what the DOJ wanted to see before moving forward
in its review.
Naturally, this is only speculation, but the timing of the
hearing and the DOJ review suggest that there may be some informal connection.
As there appears to be no federal level political concerns surfacing from
yesterday's hearing, or the merger in general, the regulator can now presumably
proceed with its decision without any outside political pressure.
Once again, this publication firmly believes that the
competition issues in Nevada have been essentially resolved by the Nevada DOI
and as a result the DOJ will ultimately grant conditional approval without much
further delay. While approval before the end of this month remains technically
possible, the review obviously may continue into November. It should not,
however take the DOJ more than a month to reach a decision for this
transaction.
October 10, 2007 (12:20p) - Status
Report
Unfortunately, there have been virtually no
developments in this deal over the course of the last few weeks. This is
perhaps not terribly surprising given that the last major event involved Nevada
Governor Gibbons publicly "expressing concerns" to the DOJ -- an
event that isn't really all that compelling in the grand scheme of things for
this deal.
It is often difficult to interpret the period the latter
stages of a DOJ review in situations like this where information has been
relatively free-flowing, for the most part. This publication will continue to
rely heavily on the Pacificare-UnitedHealth precedent,
the related perception of UNH's acumen in dealing with state and federal
regulators, and the fact that there are no legitimate antitrust issues that can
not be resolved fairly easily in this case.
It continues to be believed that the DOJ is nearing the end
of its review and is essentially going over the Nevada DOI's information, as
well as factoring in any new claims/concerns which are presumably being
provided by the American Medical Association and/or Governor Gibbons. The
critical aspects of this deal have not changed at all since the deal was
announced in March: the acquisition of SIE simply will not significantly alter
the healthcare landscape in Nevada other than in a few localities.
Again, the primary concern is believed to be Clark County,
where both companies currently have a presence, and competition is very
limited. It is almost inconceivable to foresee a situation where the DOJ would
flat-out deny this merger based on a single geographic area where certain
conditions could quite easily protect the market well into the future. Thus, it
must be assumed that the regulator and companies are focusing this particular
issue and will very soon resolve any problems the DOJ may currently
have.
It was originally predicted upon deal announcement that the
companies would be able to obtain all necessary approvals before the end of
this month. This continues to be the expectation despite the lack of
information over the last few weeks.
September 17, 2007 (8:50a) - Status
Report
Nevada Governor Jim Gibbons has reportedly
contacted the DOJ via letter expressing his concerns with this merger. Gibbons
has been quoted with the following statement:
"I remain deeply concerned about the
potential monopoly this merger could create, particularly for Medicare
recipients and in the HMO market."
Gibbons continued involvement in this case is somewhat
perplexing in that the Governor maintained a very visible presence during the
Nevada DOI proceedings, but never really opposed the merger. Apparently,
the DOI's conditions -- which should have been fully known by the Governor --
have left may Nevada politicians and consumers disappointed, to say the least.
So it is unclear at this point if Governor Gibbons communications with the DOJ
are simply to cover any future political damage or if his concerns are
genuine.
In general, the Governors continued involvement is
not considered at this time to be a major threat to the deal. While the
DOJ will certainly factor in the Governors comments, the regulator is just as
likely to question his openly neutral stance when the deal was being reviewed
in his own state. And, if Clark County Nevada is, as believed, to be the
critical issue where the DOJ is concerned, the regulator will almost certainly
be inclined to impose its own conditions on that specific market, rather than
rejecting the deal in its entirety. Again, the DOJ is more likely to use the
Nevada DOI review as positive guide for its own review, rather than viewing it
as flawed process.
At this time, this publication's assessment of this deal
remains positive despite the continued concerns and activism of Governor
Gibbons, or any other Nevada official that may enter the picture. Conditional
DOJ approval continues to be expected before the end October.
September 7, 2007 (9:50a) - California /
Arizona DOI Approvals
The companies have announced the receipt of Form
A approvals from the California Department of Insurance and
Arizona Insurance
Department.
The DOJ review remains the final regulatory obstacle for
this transaction. It remains anticipated by this publication that the companies
will obtain DOJ clearance, with conditions similar to those imposed by the
Nevada DOI, within the next six weeks.
August 29, 2007 (9:30a) - Status Report
As widely reported,
Nevada Attorney General
Catherine Cortez-Masto intends to conduct an investigation into this merger
to determine if "monopolistic tendencies" remain in light of the
Nevada DOI conditional
approval. The AG's investigation has been prompted by Nevada Nevada Governor
Jim Gibbons, who apparently is not fully satisfied with the DOI conditions and
wants the AG to explore options for potentially blocking the merger in the
future.
This publication currently does not foresee the AG
investigation resulting in a deal blockage, although it certainly does present
an unexpected, additional risk to this transaction. There is just very little
precedent for a single state AG stepping in to prevent a merger, particularly
this late in the process. Add to that that fact that the "monopolistic
tendencies" are not terribly legitimate given the facts of this
combination. The focus appears to be Clark County, where SIE is already the
dominant healthcare provider, and UNH has a relatively small share of that
specific market. In other words, as pointed out from the beginning of this
deal, the merger will not significantly altar the existing healthcare
market in Nevada or its localities.
Thus, the current AG actions is unlikely to raise any new
concerns or establish a legitimate basis for actually moving to block this
merger. It can be said again with some degree of certainty that this deal is
being used mostly for public relations purposes, and it has clearly served its
purpose in that regard.
However, it must also be pointed out that states have become
somewhat more aggressive, and successful, in challenging mergers in the last
few years. This has not yet applied to healthcare-related deals, but it must be
factored into this case.
As discussed previously, the DOJ is expected to act fairly
quickly now that the DOI approval has been issued. This publication continues
to expect a successful completion in a September/October time frame.
August 27, 2007 (9:10p) - Nevada DOI
Approval
The
Nevada DOI has formally
approved the Form A application associated with this transaction. As expected,
the DOI has attached "market conduct conditions" which are outlined
in the
official DOI press release.
The companies have issued a press release announcing DOI
approval that does not mention the conditions imposed by the DOI. In other
words, the conditions are not a significant issue going forward for the
companies.
The DOJ review remains in progress as of today. It is
expected that the DOJ will receive the Nevada DOI order and full DOI docket
documentation, which will be included in the antitrust review. Given that the
significant overlaps in this combination exist solely in Nevada, it is fully
anticipated that the DOI approval will facilitate a rather quick DOJ approval.
This remains expected before the end of October, and quite possible before the
end of September.
August 27, 2007 (6:15p) - Nevada DOI
Status
As of this update, the
Nevada DOI has not issued
its decision in this case, but is expected to so shortly as no word of review
extension has surfaced to this point.
It continues to be expected that conditional DOI approval
will be issued within the next few hours, followed immediately by a joint
company press release. However, it is obviously too early to assess any
potential conditions or the impact they may have on the overall
transaction.
This publication does not anticipate the conditions (if
imposed) to cause the companies to reconsider moving forward with this deal.
August 22, 2007 (9:05a) - Status Report
The Las Vegas Sun has published this very enlightening article on the
Nevada DOI review, and in
particular DOI Commissioner Alice Molasky-Arman.
What is critical in assessing this situation, as noted in
the article, is that Molasky-Arman will decided whether to approve, reject, or
impose conditions on the merger within the context of her 12-year tenure and
future legacy as a highly-respected public servant. The spotlight is now
squarely placed on Ms. Molasky-Arman as she is in the virtually impossible
position of appeasing all sides on the merger issue. As the article accurately
points out, "she will be criticized no matter what she
decides."
The decision is currently expected by this Monday, August
27. It has been the opinion of this publication from the outset that the
merits of the companies' case for approval, combined with UNH's accumulated
experience in dealing with this sort of contentious situation will ultimately
win the day.
However, it must be acknowledged that the circumstances
involved in the Nevada review process, which now include the "legacy
factor" of Ms. Molasky-Arman, suggest that Nevada DOI rejection is a
distinct possibility. It is impossible to put an estimate on the chances of
this occurring here, but it seems logical to places the rejection chances at
roughly 25%.
Given the political/public involvement that has developed
rapidly in the latter-stages of this deal, and factoring in Ms. Molasky-Arman's
professional situation, it seems much more likely that the merger will be
approved with some major conditions. This is, after all, the only way to
satisfy opponents and supporters of the merger, and would place the onus on the
companies to accept the imposed conditions.
In short, this publication now projects conditional approval
from the Nevada DOI within the next several days. However, the conditions may
be severe and could potentially cause the companies to re-evaluate the
rationale behind the merger.
It remains tentatively anticipated that the companies
will successfully complete this merger before the end of October 2007.
August 20, 2007 (1:55p) - Status Report
Three weeks after the
Nevada DOI's second hearing
session and there is a virtual silence coming from the companies and the two
key regulators (Nevada and DOJ). It is difficult to confidently determine if
this is a positive or negative at this point, especially in light of the
relatively negative momentum that head developed in conjunction with Nevada's
hearings.
This publication continues to believe that there is very
little basis for the negative sentiment for this merger, and that it is
primarily the result of effective AMA lobbying within Nevada combined with the
essentially free publicity a deal like this presents for state politicians. As
noted from the beginning of this deal, the Pacificare-UnitedHealth merger served in nearly an identical
capacity in California. After the obligatory resistance and public outcries,
that deal went through fairly easily, relatively quickly, and without
conditions.
The Pacificare-UnitedHealth parallel to this case is obvious
and more than likely will continue until this deal is ultimately
completed.
Again, at this point it is extremely difficult to give a
confident assessment of the overall situation. The fact that members of the
Nevada legislature have become actively involved does present an aspect which
was not present in the Pacificare-UnitedHealth deal, and therefore it must be
factored into the current deal. However, the lull in activity is perceived as
more of a positive than a negative at this point, as it is assumed that the
companies are now working directly with the Nevada DOI and state politicians in
their own lobbying efforts. Clearly, UNH has a great deal of experience and
successful track record in this particular area.
Until some legitimate indication surfaces from within Nevada
(the AMA is certainly not the indicator here), it remains anticipated that the
companies will obtain the required regulatory consents before the end of this
year, and very possibly before the end of October.
July 31, 2007 (9:20a) - Nevada DOI
Status
The
Nevada DOI's second round of
hearings concluded last Friday (7/27) with opposition and/or concern having
increased significantly as momentum seems to be working against the companies'
plans at this point. This is not to suggest that the deal is in imminent
danger. However, it would be remiss to ignore the growing anti-merger sentiment
the the DOI's hearing venue has facilitated -- precisely the type of
political/public intervention that was hypothesized at the beginning of the
deal, but did not surface until the last month or so.
In response to the AMA's claims (as well as other associated
groups and individual citizens) the companies have published
this news release which claims to offer facts to counter
claims presented at the DOI hearings. Although this publication tends to agree
with the data and overall concept of the document, it will most likely fall on
deaf ears where the AMA and public opponents are concerned. Presumably, the DOI
is already fully aware of the information offered by the companies and is
factoring the data into its review process.
Once again, there is absolutely no evidence that the
SIE-UNH combination will significantly alter the overall healthcare landscape
in Nevada, as UNH's current presence in the state is relatively small. The
backlash present at this point seems to be directed at the healthcare industry
in general, and particularly HMO's, and this merger presents an ideal target
for groups such as the AMA, as well as select politicians, to voice their
frustrations.
Unfortunately, the opposition can no longer be completely
discounted as it has been in previous reports. The next few weeks will be
critical for the companies as they will need to continue to address the various
concerns very openly and very publicly. The Nevada DOI, much like many state
regulators (see NWEC-Babcock) is certainly not immune
from political and/or public pressure and it could conceivably deny the
companies' Form A application if the companies fail to quell the growing
opposition.
At this point, it remains expected that the companies will
successfully completed this merger after obtaining Nevada DOI and DOJ approval.
However, there is clearly a significant movement against the merger which much
be considered a legitimate threat to the transaction. If the companies are
complacent in dealing with this situation, the chances of the deal falling
through will increase very quickly. Currently, the chances of deal failure are
estimated at >20%.
July 26, 2007 (11:00a) - Nevada DOI
Status
The first day of the second round of
Nevada DOI hearings has seen
the emergence of political interest, which has been conspicuously absent up to
this point.
First, Nevada Attorney General Catherine Masto, via the
Bureau of Consumer Protection branch of the office, has both
filed comments expressing concerns with the merger and requested that the DOI
comment period be extended into late September. According to reports, the AG's
office has not determined an official position on the merger as of yet, which
is somewhat surprising given that the deal is now in its fifth month.
Second, some members of the Nevada Legislature have now
entered the DOI process. So far, the participation is limited to two
representatives (Speaker Barbara Buckley and Susan Gerhardt) and neither has
expressed direct opposition to the merger. However, as with the AG's office,
they appear to be suddenly 'concerned' and will therefore become involved in
the DOI review.
It must be pointed out that these developments have been
expected from the outset, although it was not expected that the political
involvement would come so late. Clearly, these are examples of public officials
seizing the opportunity to obtain high-end publicity -- and in this case they
are doing so without actually opposing the merger. Thanks to Governor Gibbons
entrance a few weeks ago, the profile of this case has reached the level where
simple participation is adequate to realize public relations benefits.
Therefore, this publication must view these developments as standard and
relatively non-problematic in terms of the merger being completed.
Naturally, it is now entirely possible that political
influence will delay the DOI review process well beyond what is actually
necessary. But again, the companies (and this publication) factored this into
the equation.
The bottom line remains entirely unchanged. UNH's presence
in Nevada, pre-merger, is simply not large enough to actually affect the
healthcare landscape throughout the state. SIE's position in some smaller
markets is already dominant even without the combination, and there are no
markets that will be adversely affected due to overlapping operations. This
particular point will ultimately prevail with the Nevada DOI and the DOJ, and
the companies should be able to successfully complete this transaction,
probably before the end of October.
July 16, 2007 (9:55a) - Nevada DOI Hearing
Details
The
Nevada DOI has
scheduled additional hearings in its Form A review for this
case on July 25, 26, and 27, at three different Nevada locations.
It will be stated again that, although unusual (if not
unprecedented for the DOI), these hearings are generally not considered a
negative development for the merger, as opposition to the deal remains isolated
to the AMA and its associates, rather than expanding to the political/public
sphere. The hearings are viewed as a logical process in response to what is
clearly a major development for the healthcare landscape in Nevada. However,
there continues to be no evidence of concerted opposition from Governor Gibbons
-- who requested the hearings -- or any other major state politician.
In short, the hearings appear to be a publicity safeguard
more than anything else, and will ultimately result in DOI approval before the
end of August.
July 9, 2007 (10:05a) - Nevada DOI
Status
The
Nevada DOI has announced
that it will hold additional public hearings in its review of this transaction.
Hearing dates have not been scheduled as of this entry.
The hearings are a direct result of Nevada Governor Jim
Gibbons formally requesting the hearings during the initial public hearing held
last month. As noted previously, the Governor does not oppose the merger and
appears to be using the case as a form of public outreach, rather than any
legitimate concern for the merger. In fact, the Governor has been quoted with
the following with respect to the DOI review process
"In the end, this merger may work to the
benefit of Nevadans, but at this point we still need more information. This
could be the largest health care event in Nevada history."
This is not the sort of rhetoric that foreshadows serious
problems for the transaction over the coming weeks. Indeed, it seems more as if
the Nevada political environment is more favorable to this merger than was
expected previously. Thus, there continues to be no expectation of major delays
from the key state of Nevada, and DOI (as well as DOJ) approval remains
expected before the end of September 2007.
Once scheduled, the hearing dates will be posted to
this DOI
website.
June 28, 2007 (8:15a) - SIE Shareholder
Approval
SIE shareholders approved the merger yesterday,
June 27.
The companies are offering a vague closing projection of
"end of 2007, or sooner".
As discussed in recent updates, a close before the end of
September is possible for this deal given the regulatory factors involved.
June 18, 2007 (9:20a) - Nevada Status
The
Nevada DOI hearing last week
was highlighted by the intervention of Nevada Governor Jim Gibbons formally
petitioning the DOI to conduct additional hearings into the merger. However,
the Governor does not currently oppose the merger and has scheduled meetings
with both companies today. The Governor made the following statement following
the DOI hearing:
"I am in no way voicing opposition to this
proposal. However, I believe that we need to balance support for commerce and
free enterprise with protecting health care quality and access for our Nevada
families. This is a fact finding opportunity for Nevadans throughout the state
to be heard and to have their questions answered."
Had this been an election year (Gibbons term ends in 2010)
the Governor's rhetoric would almost certainly have been more motivated towards
opposition, if only to obtain the requisite measure of publicity. As it stands,
there remains virtually no political opposition to the merger in the key state
of Nevada. In fact, reports from the DOI hearing indicate a high level of
support from both the business and political community.
The AMA, however, has continued its assault on the deal via
the DOI hearings. In its formal filing with the DOI, the AMA made the following
statement:
"The impact in the state of Nevada is
unlike the impact in any market of any previous health insurance merger ... a
negative effect that will be compounded by questionable business practices
engaged in by United in other markets."
It appears as though the AMA, along with a handful of
associated groups, will be opposing this merger without much help from the
public and/or politicians of Nevada.
It remains expected that this deal will obtain the necessary
state insurance and federal (HSR) approvals with relatively little difficulty.
A close before the end of September would not be at all surprising given the
progress the companies appear to making in the various processes.
June 8, 2007 (11:30a) - Status Report
The only development in this deal that can be
called substantial is the apparent lack of continued, public, and motivated
opposition of the merger from entities other than the AMA and its associated
groups. Joining the AMA in recent weeks as opponents are the Nevada State
Medical Association, American Hospital Association, and Clark County Medical
Society -- organizations that tend to represent physicians more than the
general public.
Conspicuously absent is opposition from politicians within
Nevada who have remained absolutely silent to this point. As of this entry,
there does not appear to be a single Nevada public figure that has openly
stated opposition to the merger, which is somewhat surprising given the AMA's
vocal opposition. This deal is clearly not encountering the resistance
experienced in the Pacificare/UnitedHealth merger.
The Las Vegas Sun
published this article on June 6 suggesting that the DOJ's
second request and associated opposition may be more serious then generally
assumed. Some excerpts from that article include that following:
"The Justice Department or FTC rarely
challenges a proposed merger. It happened in only four of 50 investigations in
2005.
"(Interviewed attorneys) said the most recent health
care challenge may be a bad omen for United and Sierra Health.
"In 2006 the Justice Department obtained a consent
decree requiring United to divest holdings when it merged with PacifiCare
Health Systems. The new company gave up about 6,000 members in Boulder, Colo.,
and 54,000 members in Tucson . United's market share would have been much
smaller in those cities than it would be in Las Vegas if it merged with Sierra
Health. The new entity would have controlled 33 percent of the market share for
health insurance sold to small-group employers in Tucson , and would have been
responsible for more than 30 percent of total payments to physicians in
Boulder."
While the Pacificare-UnitedHealth analogy certainly has some
relevance to the pending merger, there really is no direct comparison with
respect to overlapping operations and local/regional impact of the deals. As is
well-known at this stage (presumably by the DOJ), UNH's presence in Nevada is
very small, and almost negligible when compared to the overlaps in the
Pacificare transaction. Furthermore, the issues in the Pacificare deal were
fairly obvious from the outset -- divestitures were a given and factored into
the merger process very early on.
Similarly, the second request in this merger was fully
anticipated and can not be perceived as a major concern this early in the
process, particularly when factoring in the actual dynamics of the markets
involved. The bottom line remains fully intact: the Nevada healthcare market
will not be significantly altered by this transaction when viewed objectively.
It is more a transfer of SIE's operations in Nevada (and other areas) to UNH,
rather than a merger of competing entities. The fact that UNH is outpacing its
rivals on a broad regional scale may be a problem to certain groups, but it
will have minimal affect on consumers.
In short, this publication remains extremely positive on the
deal's chances for obtaining DOJ consent without major difficulties. Completion
in a September / October time frame remains the projected outcome at this
stage.
May 23, 2007 (8:30a) - Definitive Proxy
Statement Filed
SIE filed the
definitive proxy
statement for this transaction with the SEC on May 21, 2007.
The SIE shareholder meeting date remains June 27,
2007. The proxy mailing date is May 22, 2007.
The proxy provides the following update on the state
insurance filings:
"To obtain the requisite approvals,
UnitedHealth Group has filed acquisition of control applications in Nevada and
California and has filed pre-acquisition notification forms in Arizona and
Nevada."
Details of the three state Form A reviews will be obtained
and posted shortly.
As discussed previously, the California and Nevada DOI's may
both potentially become timing issues for this transaction, with California
being somewhat of a 'wildcard' regulator where this case is concerned. The
California DOI has been known to take particular interest in certain
insurance/healthcare related merger, especially when UNH is involved. There is
currently no legitimate indication that public and/or political concerns exist
in California in relation to the merger, which is not terribly surprising given
SIE's relatively small presence in the state. However, apathy for the deal
could easily change over the coming months.
The Nevada DOI is essentially expected to conduct its review
parallel to the DOJ second request review in terms of timing. As with
California, there exists no substantial political/public opposition to the
merger, with on the AMA present as an antagonist to this point. But also
similar to California, the scenario could change rather quickly, particularly
in the political arena, as this deal could serve as an ideal publicity
mechanism for representatives in Nevada. To date, this has not surfaced.
Barring the emergence of opposition (other than the AMA),
this publication continues to anticipate deal completion in a September /
October time frame.
May 16, 2007 (4:30p) - HSR Second Request
Issued
As fully expected, the DOJ has issued a second
request under HSR for this transaction.
It remains the expectation of this publication that the
companies will successfully overcome the HSR obstacle and any opposition to the
merger (currently limited to the AMA) by the early fall of this year.
May 14, 2007 (8:05a) - SIE Shareholder Meeting
Details
The SIE shareholder meeting for this transaction
will be held on June 27, 2007. The record date is May 18, 2007.
SIE expects to begin mailing the proxy statement to shareholders beginning on
May 21, 2007.
As of this entry, there have been no significant
developments in the FTC or state insurance department reviews. Details of the
insurance department processes will be obtained and posted shortly.
April 23, 2007 (12:20p) - Preliminary Proxy
Statement Filed
SIE filed the
preliminary proxy
statement for this transaction with the SEC last Friday, April 20.
The proxy discloses that the HSR notification was submitted
to the FTC on April 16, 2007. The HSR waiting period expiration date is May
16, 2007. A second request will be issued on May 16, followed by a second
request review period of roughly four months, based on the information
available at this time.
The proxy also identifies state insurance approvals required
in Arizona, Nevada and California.
As discussed initially, the
California DOI is somewhat of a wildcard in this deal, as UNH and the DOI have
an extremely volatile history, particularly in terms of merger transactions.
The fact that DOI approval is required could easily translated into unforeseen
delays in the future if any public/political interest surfaces in that state.
Unlike the Pacificare/UnitedHealth deal, there exist no
initial backlash to this merger in California, nor does there appear to be any
relevant political agenda on the table which might come into play. In other
words, the presence of the California DOI in this deal is currently perceived
not as a major negative aspect, but certainly must be considered a potential
delaying factor as the deal progresses.
Similarly, the Nevada Commissioner of Insurance could very
well become a major factor in the timing to completion. The Nevada regulator is
not known for becoming a major obstacle in healthcare combination, but then
again, it has not been exposed to a deal of this magnitude in recent history.
Again, the future of the Nevada review can be foreshadowed somewhat by the
public/political reaction, which to this point has been virtually non-existent.
This could very easily change in the coming months, particularly if elected
offices are at stake.
The overall assessment of this transaction remains positive
at this point in time. The data available continues to indicate no real and/or
alarming issues of competition within Nevada (or elsewhere) despite the AMA's
continued opposition. It will be noted again that UNH is an extremely savvy
acquiror -- as seen in the Pacificare deal -- and should be able to successful
navigate through the various regulatory processes even if they become
unexpectedly difficult.
Deal completion in a September / October time frame remains
the current expectation.
April 11, 2007 (2:10p) - Status Report
Two weeks after opposition surfaced to this
merger, and there has been virtually no additional opposition outside of the
medical community. In other words, no political or broader public concern has
surfaced at this point. This is particularly of interest in Nevada, where it is
assumed that local and/or state politicians could easily used this deal for
publicity purposes, if for nothing else.
The AMA has continued its attacks on the merger via its
editorial publication,
AMED
News. In an article release last week (dated 4/16 for some reason), the AMA
makes the following claims:
"Even in Las Vegas, they've never seen odds
like this. UnitedHealth Group is poised to be virtually the only HMO game in
town, greatly increasing the probability that doctors, patients and employers
will be dealt a losing hand. Meanwhile, what are the chances that the Justice
Dept. will step in to stop it? Based on past performance: one half of
1%.
"The health plan would go from controlling 11% of the
Nevada HMO market to controlling 78% of that market, according to American
Medical Association estimates. It would dominate 95% of the HMO market in the
Las Vegas-Paradise metropolitan area after a consolidation. Now, it has only a
13% share in that local market.
"When PPOs are figured in, United would control 43% of
the HMO/PPO Nevada market postmerger. That's up from the company's 14% share
now. In LasVegas-Paradise it would control 56% of the HMO/PPO market, it now
has 18% of the market."
It seems fairly obvious that the key elements of the AMA's
own words work against its argument. The HMO market as viewed alone, is not
necessarily something the FTC is overly concerned about when it comes to
healthcare options (this is in no small part influence by the powerful HMO
lobby). But more important is the 43% post-merger market share cited with
respect to HMO/PPO providers. This is not a number that will raise very much
serious interest from the FTC.
The overall concept is that UHN currently has a very small
percentage of the Nevada market. By acquiring an already strong SIE, it will
essentially be entering new geographic areas virtually throughout the state. In
short, the deal does not significantly alter the market that already exists in
Nevada.
It is also interesting that the AMA points out the very low
percentage of DOJ blockages in merger -- healthcare in particular. If nothing
else, that should serve as a strong indication of what will ultimately occur in
this case: a second request, followed by a relatively short second request
review period, with very minimal conditions. The DOJ will certainly not block
this deal and the companies should have little trouble completing the
transaction in about six months total.
March 27, 2007 (9:50a) - Additional Opposition
Details
The group "Consumers for Health Care
Choices" has followed the American Medical Association in formally
opposing this merger with the Department of Justice. The letter of opposition
essentially echoes the AMA's concerns, and provides no new or substantial
details as part of its complaint.
The CHCC is an unknown entity in terms of an intervenor in a
merger transaction, but is currently not considered a major threat overall.
This group certainly does not have the influence of the AMA.
Although it is now clear that this deal will be surrounded
by some fairly consistent negative publicity, there continues to be no real
indication that any and all competition issues can not be resolved fairly
easily. This deal has nowhere near the magnitude of the PHS-UNH and will face nowhere near the level of regulatory
and/or political scrutiny.
Whether or not the companies anticipated the current
opposition, appeasing the DOJ should not be a terribly difficult task since the
issues appear to be limited to Nevada. Granted, the rationale of the deal is
for UNH to obtain a major stake in the Nevada healthcare market, but the level
of concessions that will presumably required should not seriously compromise
this goal.
Once again, many of the local Nevada markets (as well as
countless small markets nationwide) are already limited to one or two
healthcare choices. This is simply a reality of the industry. Data obtained to
this point strongly suggests that this combination will not considerably alter
the Nevada market as UNH's presence is very small both statewide and at most
local levels.
In short, the opposition coming out now is more a reaction
to consolidation in general and has very little substance where this deal is
concerned. The companies are fully expected to go along with any DOJ conditions
necessary in order to successfully complete this deal.
March 20, 2007 (9:40a) - AMA Opposition
Details
The
American Medical
Association yesterday formally requested that the DOJ block this
transaction on the grounds that it will violate antitrust laws in the state of
Nevada.
Excerpts from the
AMA
press release include the following:
"The AMA has deep reservations about
United's goal of dominating the Nevada health insurance market, and in
particular the Las Vegas market, by purchasing the state's largest
insurer.
"If the proposed merger is allowed, the AMA estimates
that United would control 78 percent of the HMO market in Nevada, and 95
percent of the HMO market in the Las Vegas-Paradise metropolitan area.
"Federal authorities have acted once before against
United to preserve a dynamic and competitive insurance market. The Department
of Justice required United in December 2005 to divest holdings in its merger
with PacifiCare."
This marks the second time the AMA has attempted to
intervene in a major merger transaction involving UNH, as
noted in the release, and will probably be the second time that the DOJ
essentially ignores the AMA's request. This is not to say that the AMA will
have no impact on the deal going forward, but the chances of the deal falling
through as a result of the AMA concerns are perceived to be extremely
small.
As discussed previously, these types of deals are inherently
difficult to assess from a timing standpoint, as they draw a great deal of
public and/or political interest during the course of regulatory processes.
This will probably not be the last group to express concerns with the Nevada
issues, or perhaps in California as well, assuring that the DOJ and respective
state regulators take an ample amount of time reviewing the combination.
And as with the PHS-UNH deal, this situation can be resolved
with some minor concessions, if necessary. The vast majority of the information
obtained to this point strongly suggests that the situation in Nevada is not as
dire as the AMA claims. For example, this
Q3 2006 Nevada HMO Report shows that in most Nevada locales,
the healthcare market is already dominated by one or two players and, more
importantly, that this combination will not significantly alter the competitive
landscape, simply because UNH's presence (via Pacificare) is very small across
the state. There are definitely some Nevada areas in which the two entities
compete and where the combined market shares will be very high. But again,
these high market shares already exist without the merger factored into the
equation.
Bottom line: the deal will not severely affect the
healthcare industry in Nevada. The DOJ may require some minor conditions to
ensure competition in the more populous areas, but there is currently no
expectation that potential DOJ-imposed conditions will result in UNH
reconsidering the transaction.
March 13, 2007 (12:10p) - Initial
Analysis
Any deal involving HMO's and/or the California
DOI (or any health-related CA regulator) is subject to fairly long regulatory
process. Hence, the vague closing projection issued by the companies: "by
the end of 2007 or sooner." There just is now way to accurately project
the regulatory timing for these types of deals until the public, political and
regulator reaction surfaces. So far, there has been no substantial grumblings
from consumer groups or politician, which may be attributed to the fact that
SIE's primary HMO operations are in Nevada, rather than California. However,
this does not in any way mean that California, and its history with
UnitedHealth, will not become a major timing factor in the transaction.
SIE is the top HMO provider in Nevada, with a market share
exceeding 50%, and according to some sources approaching 70%. UNH, via the
Pacificare acquisition, has about 10% of the health
insurance market, but this is not specific to HMO plans. market share.
Wellpoint's market share is in the 15% to 20% range, and competes with SIE in
the HMO market. The initial reaction to this thin data is negative where this
transaction is concerned. However, virtually every recent report on the Nevada
healthcare/insurance market characterizes the state as not only the fastest
growing in terms of new plan subscribers, but also as one of the most
competitive markets. This seem to be somewhat contradictory, given SIE's strong
position and UNH's growing position against Wellpoint.
This concept is touched upon in reports fromHealthleaders-Interstudy,
which recently made the following comment regarding Nevada and
consolidation:
"Recent acquisitions, particularly
WellPoint’s of Anthem in late 2004, and UnitedHealth Group’s of
PacifiCare in late 2005, will have effects on this market by 2008. PacifiCare,
particularly, will not benefit from United’s financial backing and
technology infrastructure. It is already launching new products for small
business in Nevada, effective June 1."
So it can be said that this deal arrives at a point of major
transition in Nevada, where UNH obviously intends to establish a major presence
via this acquisition. The chart below from 2004 characterizes the Nevada
healthcare market in terms of antitrust concerns as "Low."
This is significant, obviously, where this transaction is
concerned, as the DOJ will probably come to the same conclusion, especially in
comparison to the California market in the PHS-UNH deal. But that does not mean
this one will sail through the HSR review, especially since (again) California
is part of SIE's operations.
There is really no way to confidently provide a timing
projection for this deal, at this time. The very general impression at this
point is positive in terms of the deal being completed. These types of deals
seem to get done somehow regardless of the various obstacles. This is a case
where the timelines may provide the best initial guidance for timing: four to
six months is the common duration for similar past transaction, and this deal
will most likely have time frame at the longer end of that spectrum. And this
is primary because the California DOI and/or DMHC will be involved.
For now, the closing projection is mid/late-October
2007.
March 12, 2007 (9:05a) - Timelines - Recent
Related Healthcare Transactions
|