PacifiCare Feeling Strong, Talking Expansion : Takeovers: Cypress health network is flush with cash and eager to spend some. It might try to buy out an Oakland HMO to offer clients statewide coverage.
Eager to expand into Northern California, PacifiCare Health Systems Inc. said Wednesday that it is considering making a buyout offer for HEALS Health Plan, an Oakland-based health maintenance organization that has been courting suitors for months.
Cypress-based PacifiCare, which has built its HMO network through internal growth, has made it clear that it now wants to expand through acquisitions. The company recently was rebuffed in an attempt to buy bankrupt Maxicare Health Plans of Los Angeles.
Wayne Lowell, PacifiCare’s chief financial officer, said the company wants to expand into Northern California, where it has no contracts, to provide better service to large corporate customers that have employees statewide.
“There are a lot of employers in the state with locations in Northern California as well as Southern California and we would like to accommodate that market demand,” Lowell said.
PacifiCare’s health and acquisition muscle was demonstrated by its second-quarter financial results, which were reported Wednesday. The company is flush with cash for a buyout. It reported that on March 31 it had $190 million available in cash and short-term investments.
The company posted second-quarter earnings of $3.9 million, up 88% over $2.1 million for the same quarter a year ago. Its second-quarter revenues increased 59% to $246.76 million over revenue of $154.97 for the year-ago period.
Investors apparently were pleased with the results. The price of the company’s stock rose to $18 a share, up $1.25, at the close of the market Wednesday.
HEALS has been looking for a buyer that could provide it with much-needed working capital. Even in more need of cash is HEALS IPA (Independent Practice Assn.), a network of physicians that provides care to HEALS members and is heavily in debt. While the IPA operates as a separate organization, it owns 40% of the HEALS HMO that is for sale.
Lowell said PacifiCare, which has 636,500 members, so far has not made “a solid offer” for HEALS, which has 96,000 members in the San Francisco Bay Area. But he added, “We are very interested. We have had quite a few visits with them.”
He said that as an alternative to acquiring HEALS, PacifiCare also is talking with doctors in the Bay Area to determine if it would be feasible to start up its own Northern California operation.
Kaiser Permanente is by far the largest player in the Northern California market, with more than 2 million members constituting about 50% of the managed care market.
