MINNEAPOLIS — Managed care giant UnitedHealth Group agreed to buy Mid Atlantic Medical Services Inc. in a $2.95 billion deal that would give the combined company a leading position in the mid-Atlantic region.
UnitedHealth said Monday that MAMSI's shareholders will receive $860 million in cash and the remainder in UnitedHealth shares. The deal values MAMSI shares at $62.49 — a 16 percent premium on Mid Atlantic's Friday closing price of $53.88.
Mid Atlantic shares surged on the news.
The company, based in Rockville, Md., owns and operates health maintenance organizations and provides related services for approximately 2 million people in Maryland, the District of Columbia, Virginia, Delaware, West Virginia, northern North Carolina and southeastern Pennsylvania.
Together, Minnetonka-based UnitedHealth and MAMSI provide health benefits or related network services to more than 3.5 million people in the region, making it a regional leader, UnitedHealth's chairman and chief executive William W. McGuire said.
MAMSI will keep its name and management team. The deal is subject to approval by regulators and MAMSI shareholders. It's expected to close in the first quarter of 2004.
"We don't need to do acquisitions to improve our growth rates or camouflage our growth rates or to smoke-screen our earnings," McGuire told analysts in a conference call. "We will perform at a very strong level. This is just a great opportunity for two companies with strong histories to come together and do even better."
UnitedHealth expects to see gains from the combination next year, even before benefits from combining the companies and reducing duplications in services. "We expect even better gains to accrue from this merger in 2005," McGuire said.
The deal will continue to pay off for several years, Mark Groban, MAMSI chairman and chief executive, told analysts.
"The real upside in this deal is the potential for growth across multiple businesses in 2005, 2006 and 2007," Groban said.
Under the agreement, MAMSI shareholders will get 0.82 shares of UnitedHealth stock for each share of MAMSI stock, plus $18 per share in cash. UnitedHealth said its cash outlay will ultimately be just over $600 million after factoring in option and residual share proceeds, bringing the cost to the company down to $2.69 billion, UnitedHealth officials said.
Shares of Mid Atlantic rose $5.74, or 11 percent, to close at $59.62 on the New York Stock Exchange, where shares of UnitedHealth fell $1.85, or 3.4 percent, to close at $52.40.