HealthCare USA Shareholders OK Sale to Maxicare

HealthCare USA’s shareholders Tuesday approved the $67-million sale of their company to Maxicare Health Plans Inc. of Los Angeles.

Under terms of the $13.50-a-share acquisition, Orange-based HealthCare becomes a wholly owned subsidiary of Maxicare, which becomes one of the nation’s largest publicly held health maintenance organizations.

The merger, which took effect at midnight (EST), gives Maxicare more than 1 million members. And when Maxicare’s previously announced $400-million acquisition of HealthAmerica Corp. becomes complete in early November, it will catapult the HMO giant well over the 2-million member mark, making it second only to Oakland-based Kaiser Foundation Health Plans.

Although he declined Tuesday to outline immediate plans for the HealthCare unit, Samuel Westover, Maxicare’s chief financial officer, said HealthCare’s Orange-based General Med subsidiary would remain a separate operation, while HealthCare’s Michigan-based Independence Health Plan would be fully incorporated into Maxicare.

Westover also declined to say whether any of HealthCare’s 1,100 employees would be laid off as Maxicare begins digesting the company. However, he said “some top management,” including Harlan W. Loomas, HealthCare’s chairman and chief executive, already are in the process of leaving the company.

Loomas, who will remain a consultant to the company, will realize nearly $3 million from the sale of his stake in HealthCare, as well as from the acceleration of stock options he held. As a consultant, Loomas will receive $75,000 a year, plus bonuses totaling $1 million through 1992 as part of his agreement not to compete against Maxicare.

The two companies agreed to the $67-million merger in July, more than a year after Maxicare secretly began wooing its sickly competitor, making an informal $11-a-share offer in early February. The negotiations broke into the open in May, when Maxicare revealed that it had acquired an 11.9% stake in the company on the open market and wanted to buy the rest.

HealthCare repeatedly rebuffed Maxicare’s overtures, but its directors on July 8 agreed to the $13.50-a-share buy-out bid. Although the price is well below HealthCare’s recent 12-month high of $22 a share, Loomas said at the time that it accurately reflects the company’s value.

In an interview Tuesday, Loomas said the merger was “very difficult emotionally.” The non-competition agreement, Loomas added, will bar him from the health care business for 10 years. “I don’t have the foggiest idea of what I’m going to do,” he said.

While Maxicare takes on about $75 million in debt and an additional $97 million in good will arising from HealthCare’s 1985 purchase of Independence Health Plan, HealthCare easily can generate more than $25 million a year in pre-tax earnings, said Larry Selwitz, a health care analyst with Bateman Eichler, Hill Richards of Los Angeles.

“I think it’s a very good deal for Maxicare,” said Selwitz, who noted that HealthCare’s General Med subsidiary spends only 78 cents of every dollar it earns in patient revenues, giving it one of the highest operating profit margins in the HMO industry.