PacifiCare, FHP Shareholders Approve Merger

CYPRESS — Shareholders at two of Southern California’s largest health-care companies on Tuesday overwhelmingly approved a $2.1-billion merger that would create the nation’s fifth-largest health maintenance organization.

In a perfunctory meeting Tuesday morning at their company’s Cypress headquarters, PacifiCare Health Systems shareholders agreed to acquire Fountain Valley-based FHP International. Hours later, FHP shareholders met briefly at the company’s Costa Mesa campus to endorse the deal, which still must be cleared by regulators in Washington, D.C., and several Western states, including California.

The proposed deal, which was announced Aug. 5, would create a merged company with more than $9 billion in revenue and 4 million members in 15 states stretching from California to the Midwest. Executives at both companies said Tuesday that the merger could be completed as early as this month.

The deal is one of several that have occurred in the health-care industry, where one-time competitors are in the midst of consolidating. Aetna Life & Casualty, for example, paid $8.6 billion for U.S. Healthcare, and Foundation Health Corp. has agreed to buy Health Systems International Inc. for $1.27 billion.

The wave of deals is being pushed by employers and government purchasers of health-care services who hope that the consolidation will help to stem ever-rising medical costs. Big, regional health-care providers are jockeying for position, arranging deals that will extend their reach into all corners of the country.

Observers of the health-care industry say that the company created by the merger of PacifiCare and FHP should be better positioned to compete with such large rivals as Kaiser Permanente and Healthnet, especially in the hotly competitive area of providing health care to Medicare patients.

But the merger also will force hundreds of layoffs as the combined companies reduce costs by eliminating duplications in corporate and administrative staffs. Company officials said in 1996 that as many as 900 positions might be “redundant.”

When the merger is completed, the FHP name will disappear and the resulting company will be run by PacifiCare President and Chief Executive Officer Alan Hoops.

PacifiCare’s stock was unchanged at $81.25 in Nasdaq trading Tuesday, while FHP closed up 12 1/2 cents at $31.75.