CalPERS, insurer settle case
The California Public Employees’ Retirement System, the country’s largest public pension fund, announced Wednesday that it and other pension funds had reached an $895-million settlement to a class-action lawsuit brought against healthcare giant UnitedHealth Group.
Also Wednesday, UnitedHealth, the parent of Cypress-based PacifiCare, announced a lower profit outlook and a restructuring that would slash 4,000 jobs.
The nation’s second-largest health insurer said its restructuring would focus more on regional coverage. The new UnitedHealth will be “simpler, leaner and faster,” Chief Executive Stephen J. Hemsley said.
Analysts saw the announcement as perhaps the end of a long rough patch for UnitedHealth. Its shares fell 51 cents, or 2%, to close at $25.12 on Wednesday after sliding to $25.04 earlier in the session, a level not reached since 2003.
The lawsuit settlement is an outgrowth of a 2006 scandal in which UnitedHealth provided executives with windfalls by backdating stock options given as incentive payments.
William McGuire, then UnitedHealth’s CEO, stepped down under pressure. He paid $7 million to the Securities and Exchange Commission and also agreed to repay $468 million to the company.
CalPERS and other pension plans are among the plaintiffs in the July 2006 lawsuit that is being settled. CalPERS’ attorneys declined to identify the pension fund’s share of the proposed settlement.
Minnetonka, Minn.-based UnitedHealth said the proposed settlement of what it called its “historical stock option practices” provided the company with closure and “allows us to focus on quality, affordable healthcare solutions.”
CalPERS contended that UnitedHealth allowed top executives to book purchase dates for stock options when share values were low and sell those same shares later when prices had climbed.
The settlement, CalPERS said, is believed to be the largest stock option backdating recovery from a class-action lawsuit.
It will become final after approval by the CalPERS and UnitedHealth boards and the U.S. District Court in Minnesota, where the lawsuit was filed.
The proposed settlement also includes corporate governance overhauls that had long been sought by the pension fund and other institutional investors.
The changes include the election of a shareholder-nominated director, enhanced standards for director independence and shareholder approval for re-pricing of shares, CalPERS said.
An additional proviso would tie executive compensation to the company’s performance compared with industry peers.
“The corporate governance reforms achieved in the settlement are a major step forward in our broader effort to ensure that directors are responsible to shareowners,” said Peter Mixon, CalPERS’ general counsel.
The $235-billion CalPERS fund holds 4.9 million shares in UnitedHealth, valued at $127 million.
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