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Financial Woes Doom a Merger, Dog an HMO, Dampen Investor Spirit

MANAGED CARE September 1998. © MediMedia USA
News and Commentary

Financial Woes Doom a Merger, Dog an HMO, Dampen Investor Spirit

MANAGED CARE September 1998. ©1998 Stezzi Communications

Humana and United HealthCare will never make it to the altar. The two companies terminated their merger agreement after a stock swoon dropped the value of the union from $5.3 billion to $3.1 billion.Wall Street got nervous when United announced a $565 million second-quarter loss stemming from a one-time $900 million charge associated with "strategic realignment activities." Those moves include withdrawing from several commercial markets, as well as rural Medicare markets with high medical loss ratios. United will make other cost-cutting moves, including layoffs.

Though Humana posted a $52 million second-quarter profit, the news about United nonetheless triggered a huge selloff of both HMOs' stocks. United shares lost 30 percent of their value the day of its announcement, while Humana's stock plunged 29 percent.

Meanwhile, Oxford Health Plans posted second-quarter red ink, to the tune of $508 million. The HMO chalked up more than half of the loss to one-time internal restructuring expenses. Word came days after Oxford's ominous announcement that it would soon cut physician and hospital fees and raise premiums.

The day it released second-quarter financials, Oxford stock closed at $7.25 a share, less than a third of its $25.88 close on Oct. 27 — the day Oxford stock lost 62 percent of its value.