PacifiCare Health to Merge Stock Classes
PacifiCare Health Systems Inc. said Tuesday it will combine its Class A and Class B common stock into a new single class of stock and will begin buying back 13% of its outstanding shares from its biggest shareholder in a bid to boost the stock’s price.
The Santa Ana-based health maintenance organization operator said having two classes of stock, which trade at different prices, has confused some investors and hurt the stock price.
PacifiCare, the nation’s largest HMO for people covered by the federal Medicare program for the elderly and disabled, said it will pay $75 to $120 a share for the stock it buys from UniHealth Foundation, which now owns about 40% of PacifiCare’s 14.8 million Class A shares and just under 1% of its 30.8 million shares of Class B common stock.
The agreement calls for PacifiCare to buy the foundation’s 5.9 million shares of Class A stock in seven installments through Feb. 15, 2001, at prices of not less than $75 a share and not more than $120 per share. The initial purchase of 1 million shares is to be completed within 30 days of the date the two stock classes are combined.
Among other things, combining the shares “will place common stockholders on equal footing,” PacifiCare Chairman Alan Hoops said.
The move would increase the company’s earnings per share this year and next, Hoops said. Analysts have said they expect PacifiCare to earn $5.56 a share this year and $6.40 a share in 2000.
The company earned $202.4 million, or $4.40 a share, in 1998. Its revenue totaled $9.52 billion.
PacifiCare’s Class A common stock closed at $74 Tuesday, up $2.75 for the day, while the Class B shares closed at $79.88, up $1.25. The shares trade on the New York Stock exchange.
The company’s stockholders approved the dual class stock structure in 1992 to permit UniHealth, which at the time owned 54.4% of the common stock, to maintain controlling voting interest in PacifiCare while allowing the health maintenance company to raise funds by selling shares of nonvoting Class B stock.
Since then, UniHealth has periodically sold PacifiCare stock to fund development of its business interests.
UniHealth converted to a charitable foundation last year and is required by federal tax law to divest the bulk of its equity holdings in for-profit companies like PacifiCare. It will retain 285,000 of the new PacifiCare shares for its investment portfolio.
