Travelers to Pay More Than $34 Million : Whittaker OKs Sale of HMO Unit
Less than a year after earmarking more than $50 million to set up a nationwide health maintenance organization network, Whittaker Corp. said Wednesday that it has agreed to sell its fledgling HMO unit to Travelers Corp. for more than $34 million.
The deal would make Hartford, Conn.-based Travelers--a diversified financial services and insurance concern--a strong competitor in the health-care market and continue the trend by major insurance companies to diversify into the burgeoning HMO field.
As the expansion of the HMO market slowed in a sluggish economy, Whittaker--a Los Angeles-based conglomerate of defense electronics, chemicals and health-care operations--lost enthusiasm for HMOs, which are prepaid health plans that deliver lower-cost care by using physicians who agree to control their costs.
“It’s a maturing industry, and I believe there’s going to be a shakeout,” said Joseph Alibrandi, chairman of Whittaker. “It became clear that one really needed to make a major commitment” to the development of HMOs to be successful.
In addition to $34 million in cash, the deal includes an unspecified share in the operation’s returns for the next 10 years. Alibrandi declined to say in a telephone interview how much the company would receive. But he said that, for the first five years, the amount that Whittaker receives will be tied to the revenue of the HMO operation. For the second five years, the amount will be tied to operating profits, he said.
Robert Hanisee, president of Seidler Amdec Securities, a Los Angeles investment firm, applauded the move, saying he expects Whittaker’s earnings for the fiscal year ending in October to equal last year’s $1.40 per share, or about double the 60 cents to 80 cents a share that he predicted before the pact.
Only last July, Whittaker--which earned $19.9 million on sales of $1.13 billion in the year ended last Oct. 31--had unveiled plans for a nationwide HMO network that company officials forecast would generate $1 billion in annual revenue by 1990. Since then, the company has opened 12 HMOs, and another eight are being developed.
The company said it had no figures on the performance of its HMO subsidiary.
Alibrandi, who championed his company’s foray into the HMO field, said he initiated talks last year with Travelers and several other major insurance companies in an effort to set up a joint venture to take over the health-care operation.
Travelers spokesman Ron Ziemba said his company hopes to expand on Whittaker’s HMOs by using Travelers’ extensive customer base of insurance clients to build market share.
