Superior National Gets Financing to Buy FHS Unit
Foundation Health Systems Inc.’s plan to sell its money-losing workers’ compensation unit for $285 million cleared a major hurdle as buyer Superior National Insurance Group Inc. received financing.
Calabasas-based Superior National said Chase Manhattan Bank agreed to lend the insurer up to $125 million to buy the unit, Business Insurance Group Inc. Superior National, a specialty insurer, said its shareholders authorized it to raise $204 million more by selling as many as 12.2 million new shares for $16.75 each.
Woodland Hills-based Foundation, one of California’s largest managed-care companies, separately said it agreed to sell three small money-losing health plans in Texas, Louisiana and Oklahoma to AmCareco Inc. of Houston, a health-care and employee-benefits company.
The sales of the HMOs and the workers’ compensation unit are part of Foundation’s move to shed unprofitable businesses as the company struggles to cope with medical costs that are rising faster than forecast.
“There’s plenty of work to do in their main area. They need to focus their attention there,” said Ed Keaney, a Volpe Brown Whelan analyst.
The units Foundation is selling to AmCareco serve about 65,000 of the managed-care company’s 4.4 million members. Its biggest plans are in California, the Northeast, Arizona and Florida.
“It’s a step in the right direction--a teeny, little baby step,” said Keaney, who has a “neutral” recommendation on Foundation shares.
The companies didn’t disclose the financial terms of the sale, though they said Foundation will “get a preferred equity position in AmCareco. Foundation said it expects the sales will close by the end of the year, pending regulatory approvals and financing contingencies.
Foundation is getting rid of the units as part of Chief Executive Jay Gellert’s strategy to turn around the company. He was promoted to CEO in August after serving as chief operating officer under CEO Malik Hasan.
On Tuesday, the company said it will take $117 million in charges and report third-quarter earnings below forecasts as it moves to shed unprofitable units such as the workers’ compensation business.
Superior National said it expects its purchase of the workers’ compensation unit to close Dec. 10. It was supposed to be completed by the end of September, but was held up by delays in approval from the Securities and Exchange Commission.
Foundation shares rose 50 cents to close at $12.44 on the New York Stock Exchange. Superior National shares rose 31 cents to close at $17.31 on Nasdaq.
Superior National released its news on the financing at the close of U.S. markets. Foundation reported the sale of the three HMOs earlier Thursday.
