Maxicare Verifies Plans to Acquire HealthCare USA

Maxicare Health Plans Inc. said Tuesday that it has acquired nearly 12% of HealthCare USA since mid-March and is negotiating for the purchase of the rest of the company, confirming industry speculation of a pending deal between the two health maintainence organizations.

Harlan Loomas, HealthCare USA’s chairman, was notified of the development Friday when Fred Wasserman, Maxicare’s chairman, telephoned to say that his company planned to file disclosure statements with the U.S. Securities and Exchange Commission detailing its 11.9% stake in HealthCare USA.

Those holdings make Maxicare the single largest outside shareholder in the Orange-based company, said Sheila Kinnane, a HealthCare USA spokeswoman.

“We just received our copy of the 13-D,” Kinnane said. “Until Harlan can review it, I don’t think he’ll have any comment.”

Negotiations between the two companies have been taking place intermittently since early last year, said Samuel Westover, Maxicare’s chief financial officer. However, no deal has been reached yet, he said.

5 Separate Meetings

In all, according to documents filed by Los Angeles-based Maxicare with the SEC on Tuesday, at least five separate meetings have taken place between officials of the two companies to discuss an acquisition, including meetings between Wasserman and Loomas themselves.

On Feb. 8, Westover said, Maxicare offered $11 a share for HealthCare USA, which in turn made a counteroffer to Maxicare. Westover declined to say how much a share HealthCare USA has asked in its counteroffer.

“I would think $15 a share would be reasonable,” said Steven Reid, health care analyst for the Los Angeles investment firm of Wedbush, Noble, Cooke. He added that HealthCare USA “would be a great acquisition for Maxicare.”

Indeed, what Maxicare finds most appealing about HealthCare USA is its network of local medical offices and the large membership base enjoyed by its California and Michigan HMO subsidiaries, which total about 250,000 people.

Expansion Plans

“Maxicare does not have a Detroit operation at this time, so that would fit nicely into our expansion plans,” Westover said. “Additionally, in Southern California they provide more services to more members in some areas than we do, particularly in Orange County, Riverside and San Diego, so they would fill out our plan nicely.”

However, Larry Selwitz, an analyst with Bateman Eichler, Hill Richards Inc., a Los Angeles brokerage house, said HealthCare USA’s heavy debt could make its acquisition expensive for Maxicare. HealthCare, he said, has $76.1 million in long-term debt against only $28.5 million in shareholders’ equity as of March 31.

“I think there are better operations out there, and I’m surprised at this because Wasserman has been saying that it’s easier to start a new HMO,” Selwitz said. “Whatever they spend is going to be good will,” an intangible asset.

According to Maxicare’s 13-D filing, the giant HMO acquired its stake over 35 separate transactions with individual purchases ranging from as few as 600 shares to as many 61,000. The price Maxicare paid ranges from a low of $7.625 a share to as high a $10 a share.

Maxicare wants to complete this acquisition, and “the sooner the better,” Westover said. However, the company has no plans to initiate a hostile takeover should HealthCare USA become a reluctant bride, he said.

“We’re in friendly discussions right now. A tender offer would be an unfriendly action,” he said. “We don’t have any intention of attempting an unfriendly takeover.”

Poison Pill

Moreover, any hostile takeover attempt would be complicated by a “poison pill” provision adopted by HealthCare USA that would essentially require anyone attempting to acquire control of HealthCare USA without the approval of its directors to pay $40 a share for the company.

The measure, which expires at the end of 1986, would be “a serious impediment,” to a hostile takeover, Westover admitted.

Still, Maxicare said in its 13-D that if HealthCare USA either scrapped the poison pill, or if the courts were to hold it invalid, it “might be more likely” to seek an unfriendly takeover.

Tuesday’s announcement confirmed speculation among industry observers that a possible takeover of HealthCare is in the works. After a steep plunge to a new 12-month low of $5 a share in early February, HealthCare USA common stock has steadily recovered in price. The issue has posted sharp price gains on recurring takeover rumors. In September, it shot up to more than $22 a share on Wall Street speculation of a pending acquisition.

Shares Soar in Trading

Following the news Tuesday, HealthCare USA common shares soared on the New York Stock Exchange to peak at $12.50 a share, before slipping to a closing price of $11.875 a share, up $1.875 for the day. More than 361,000 shares changed hands.

Maxicare, which is traded over-the-counter, lost 25 cents Tuesday to close at $27.25 a share on volume of 353,700 shares traded.

HealthCare USA turned a first-quarter profit of $980,000 contrasted with a net loss of $3.5 million a year earlier. Revenues from continuing operations during the first quarter rose 26% to $52.9 million, from $41.9 million. Between its Orange-based General Med and Southfield, Ill.-based Independence Health Plan subsidiaries, HealthCare USA serves 250,000 subscribers.

Maxicare had first-quarter net earnings of $8.2 million, up 121% from $3.7 million a year earlier. Revenues for the first quarter rose 56% to $173.9 million, from $111.4 million in 1985. Maxicare currently has over 800,000 members in 13 states, including California.