Blue Shield and Unihealth Call Off Merger : Health care: Corporate culture clash may have derailed the deal that would have created a $6.5-billion organization.
Blue Shield of California and Unihealth America abruptly called a halt to their much-touted merger Thursday, citing unspecified “fundamental issues” that they were unable to resolve.
The deal would have created a huge managed care organization with revenue of $6.5 billion, serving as many as 4.5 million Californians and rivaled in size only by industry giant Kaiser Permanente.
The companies issued a terse joint announcement Thursday afternoon saying they had ceased negotiations but will “continue their current strong working relationship and will pursue other strategic opportunities to work together, short of a merger.”
Wayne R. Moon, Blue Shield president and chief executive, said in the statement: “Regretfully, there were several fundamental issues that arose during the negotiations which the two parties were unable to resolve.”
A source close to the deal said Moon, whom Blue Shield hired away from Kaiser in August, had misgivings about whether the prospective partners were the best fit for each other. Moon could not be reached for comment Thursday.
When the merger was announced in late June, it was cited as a prime example of the kind of consolidation that is being forced upon the industry by cost-conscious corporations--the biggest purchasers of health insurance--and by the Clinton Administration’s health reform effort.
But the deal’s collapse suggests that as strong as that consolidation impulse may be, the clash of culture between different segments of the industry may be an equally tough impediment.
“Is was a question of culture rather than details,” Alan Hoops, chief executive of Pacificare Health Systems Inc., said Thursday night. Unihealth America holds a 51% stake in the Cypress-based health maintenance organization.
Hoops said the cultures of the two large firms were so institutionalized that each would have had to sacrifice too much to merge. “Trying to achieve a new strategy became too difficult,” he said.
Unihealth, a nonprofit company headquartered in Burbank, operates 11 California hospitals, including California Medical Center-Los Angeles, Martin Luther Hospital in Anaheim and Glendale Memorial Hospital and Medical Center. Besides its interest in Pacificare, it also owns CareAmerica Health Plans, a large managed care network.
Nonprofit Blue Shield, based in San Francisco, has its own modestly sized health maintenance organization but remains one of California’s largest providers of traditional fee-for-service health insurance.
Observers say Blue Shield will remain under pressure to find another means of vertical integration--that is, acquiring or joining forces with a partner that can give it access to hospitals and other health centers.
Indeed, in the companies’ statement Thursday, they concluded that each “will begin exploring strategic alliances and business relationships with other parties.”
