A Medical Device Daily

UnitedHealthcare (Minneapolis) and Health Net (Los Angeles) reported that UnitedHealthcare has agreed to acquire Health Net of the Northeast's licensed subsidiaries and will work with Health Net to renew the customers currently enrolled in those plans with UnitedHealthcare as those customers reach their annual renewal dates. The transaction, subject to regulatory approvals and other closing conditions, is expected to close within 12 months.

"We look forward to continuing to advance the health and well-being of Health Net's Northeast members through affordable, quality health care options," said Jeff Alter, UnitedHealthcare CEO, Northeast Region. "We have a long, successful history of serving people in the Northeast and are committed to responding to local market needs while also providing people with access to the innovative health care products, programs and technology applications of a company with national scale."

"A primary goal of our strategic review was to realize the value in our Northeast health plans. This transaction will achieve this goal," said Jay Gellert, Health Net's president/CEO. "We now can focus our resources on our health plans in the West. At the same time, we are committed to meeting our Northeast members' needs as we continue to operate in the Northeast during the post-closing transition period."

The transition period is the period following the close of the transaction and prior to the completion of the transition of the membership to UnitedHealthcare.

Additionally, as part of its strategic review, Health Net said it is retaining its Arizona health plan. "We determined that there are greater synergistic opportunities among our three Western health plans than we originally thought," Gellert said. "Also, Arizona's performance is improving significantly. The commercial market has become much more rational, our provider network is stable, and Medicare is achieving anticipated improvements."

UnitedHealthcare will acquire Health Net's Northeast insurance and HMO entities in Connecticut, New York and New Jersey, which have roughly $450 million in tangible net equity. UnitedHealthcare will also acquire membership renewal rights for the Health Net Life health care business in the Northeast. The transaction is expected to be modestly accretive to both Health Net and UnitedHealth Group's net earnings per share.

UnitedHealthcare will pay Health Net transaction consideration of $60 million at close for the Medicare business, the Medicaid business and the renewal rights for the commercial membership. UnitedHealthcare will pay Health Net additional consideration on a per member basis as Health Net's Northeast commercial customers transition to UnitedHealthcare. This additional consideration could be as much as $120 million if all commercial members move to UnitedHealthcare licenses.

After closing, UnitedHealthcare will transfer about $290 million to Health Net, representing a portion of the $450 million in tangible net equity acquired in the legal entities. The remaining portion of the tangible net equity will be distributed to Health Net as the business transitions over the next two years, and is currently estimated to be about $160 million. Health Net will continue to serve commercial, Medicare and Medicaid members following the close of the transaction and prior to their renewal with UnitedHealthcare. Health Net currently expects to record several amounts in connection with the transaction, including tax benefits, severance costs, freed-up capital, other transaction-related costs and operating costs during the transition period. These items may result in an estimated net negative impact to Health Net of nearly $20 million.

In other dealmaking activity, Commonwealth Biotechnologies (CBI; Richmond, Virginia) reported signing an agreement with Bostwick Laboratories (Glen Allen, Virginia) for the sale of the assets of CBI's Fairfax Identity Laboratories and CBI Services divisions. Bostwick has agreed to buy the assets for $1.075 million in cash and certain royalty payments to the CBI over a five-year period. In addition, CBI will lease to Bostwick the building in Richmond, Virginia, housing the CBI Services and Fairfax Identity Laboratories. Subject to Bostwick's satisfaction of its two week due diligence inspection and approval of the sale by CBI's shareholders and lenders, the deal is expected to close in 3Q09.