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Humana, United HealthCare End Talks

August 10, 1998

MINNEAPOLIS (AP) _ United HealthCare Corp., acknowledging the failure of its aborted merger with Humana Inc. on Monday, outlined a future of smaller acquisitions and internal growth instead.

Managers of the managed health care giants said they mutually agreed to scrap the stock swap, once valued at $5.5 billion, conceding that the corporate marriage was called off due to a plunge in United’s stock price that would have reduced the payoff to Humana shareholders to just under $3.1 billion.

The union would have made the combined company the nation’s largest health care provider.

``The stock market has not looked favorably on health care companies recently, and that has led us to conclude this is not the most advantageous time for this transaction,″ said Susan Busch, a United spokeswoman.

United’s stock value had dropped by 43 percent, or $5.4 billion, since the deal was announced in May. Last week alone, the stock value dropped 28 percent, or $2.9 billion.

On Monday, United shares dropped $2.93 3/4, or 8 percent, to close at $33.37 1/2, while Humana shares closed down 37 1/2 cents at $17.93 3/4. Both stocks were among the most actively traded on the New York Stock Exchange.

United announced last Thursday that it was taking a $900 million restructuring charge to reflect job cuts, the sale of various businesses and unprofitability in many of its HMO plans.

United faces some of the same problems other managed care insurers face. Among its troubles, for example, are low profit margins on the HMO plans it was beginning to offer Medicare patients in 35 regional markets and planned to offer in four others, ventures the company now plans to end. Other insurers have expressed concern about their Medicare HMO plans, many of which are either eking out modest gains or losing money.

Yet while many insurers faced similar problems in 1996, amid stiff competition to bring customers from traditional ``pay-as-you-go″ indemnity insurance plans into managed care plans, their problems now are more diverse. Oxford Health Plans of Norwalk, Conn., has swapped managers after management and computer problems left it with losses. Pacificare is acting to cut doctors fees and other costs following the competitive battles of the past two years. United, by contrast, looks strong, said analyst Robert Maines of Advest Securities.

United managers plan to focus on internal growth, continue to look for acquisition targets and follow through on its planned acquisitions of health plans in Texas and Arizona, Ms. Busch said.

``There’s no single issue that presents a daunting challenge to the industry the way it did back in 1996,″ Maines said, but 1998 will continue to be ``a difficult growth environment.″

United, based in Minnetonka, Minn., wanted to purchase Louisville, Ky.-based Humana to address ever-increasing competition and rising medical costs. The combined company would have been the largest publicly traded, for-profit health maintenance organization.

Humana has about 6.2 million customers in its health care programs located primarily in 16 states and Puerto Rico. In the 1980s, it was known as a pioneer in artificial-heart research.

United serves more than 13.2 million patients in all 50 states and Puerto Rico and has additional businesses in Hong Kong, Singapore and South Africa.

Together, the companies would have had annual revenue of about $27 billion.

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