Filed by UnitedHealth Group Incorporated
Pursuant to Rule 425 under the Securities Act of 1933 and
Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Companies: UnitedHealth Group Incorporated
Mid Atlantic Medical Services, Inc.
Commission File No. 1-10864
Commission File No. 1-13340
In connection with the proposed transactions, UnitedHealth Group Incorporated
("UnitedHealth Group") and Mid Atlantic Medical Services, Inc. ("MAMSI") intend
to file relevant materials with the Securities and Exchange Commission ("SEC"),
including one or more registration statement(s) that contain a prospectus and
proxy/consent solicitation statement. Because those documents will contain
important information, holders of MAMSI common stock are urged to read them, if
and when they become available. When filed with the SEC, they will be available
for free (along with any other documents and reports filed by UnitedHealth Group
and MAMSI with the SEC) at the SEC's website, www.sec.gov, and MAMSI
stockholders will receive information at an appropriate time on how to obtain
transaction-related documents for free from MAMSI. Such documents are not
currently available.
UnitedHealth Group and its directors and executive officers may be deemed to be
participants in the solicitation of proxies or consents from the holders of
MAMSI common stock in connection with the proposed transactions. Information
about the directors and executive officers of UnitedHealth Group is set forth in
the proxy statement for UnitedHealth Group's 2003 Annual Meeting of
Stockholders, which was filed with the SEC on April 9, 2003. Investors may
obtain additional information regarding the interests of such participants by
reading the prospectus and proxy/consent solicitation statement if and when it
becomes available.
MAMSI and its directors and executive officers may be deemed to be participants
in the solicitation of proxies or consents from the holders of MAMSI common
stock in connection with the proposed transactions. Information about the
directors and executive officers of MAMSI and their ownership of MAMSI common
stock is set forth in the proxy statement for MAMSI's 2003 Annual Meeting of
Stockholders, which was filed with the SEC on March 24, 2003. Investors may
obtain additional information regarding the interests of such participants by
reading the prospectus and proxy/consent solicitation statement if and when it
becomes available.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities Act of 1933,
as amended.
FORWARD-LOOKING STATEMENTS
--------------------------
This document may contain statements, estimates or projections that constitute
"forward-looking" statements as defined under U.S. federal securities laws.
Generally the words "believe," "expect," "intend," "estimate," "anticipate,"
"project," "will" and similar expressions identify forward-looking statements,
which generally are not historical in nature. By their nature, forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from our historical experience and our present
expectations or projections. A list and description of some of the risks and
uncertainties can be found in our reports filed with the Securities and Exchange
Commission from time to time, including our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K. You should not
place undue reliance on forward-looking statements, which speak only as of the
date they are made. Except to the extent otherwise required by federal
securities laws, we do not undertake to publicly update or revise any
forward-looking statements.
The following is a transcript of UnitedHealth Group's and MAMSI's conference
call regarding the proposed merger.
UNITEDHEALTH CARE -
INVESTOR RELATIONS
CONFERENCE CALL
OPERATOR: Good morning. My name is Kimberly and I will be your
conference facilitator. At this time I would like to welcome everyone to the
UnitedHealth Group and Mid Atlantic Medical Services joint conference call
discussing their upcoming merger. All lines have been placed on mute to prevent
any background noise. After the speakers' remarks, there will be a question and
answer period. If you would like to ask a question during this time, simply
press star then the number one on your telephone keypad. If you would like to
withdraw your question, press star then the number two on your telephone keypad.
Thank you. I would now like to turn the call over to Dr. McGuire, Chairman and
Chief Executive Officer of UnitedHealth Group Corporation. Dr. McGuire, you may
begin.
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WILLIAM W. MCGUIRE, M.D.: Thank you. Good morning everyone. Thank you
for joining us on short notice today. As you know, we have announced that
UnitedHealth Group through our United HealthCare segment and Mid Atlantic
Medical Services have signed a definitive agreement to merge their businesses.
In a nutshell, there are really four important things about this combination I'd
say up front. First, it creates market leadership in an important and fast
growing region where we will represent over three and a half million people.
Secondly, there will be future opportunities for growth in this region that will
spread across each and every one of our businesses. Third, we are merging with
the best company in the region. And fourth, this is a financially prudent
transaction. I'm going to quickly note the transaction details and try to
discuss some of the business logic and expected outcome, including the financial
implications from this combination. I'm pleased that Mark Groban, Chairman of
MAMSI officially named Mid Atlantic Medical Services, Inc., is on this call
today. He will also be commenting on the merger and its expected results, as
well as updating you on MAMSI's current business outlook, which you might have
noted is improving even more than its previously strong results. And Bob Sheehy,
CEO of United HealthCare will offer a few additional thoughts. This should take
us around 20 minutes in total. This is an exciting transaction. It's going to
produce outstanding opportunities for the companies to expand and enhance the
availability of products and services for employers and consumers in the mid
Atlantic region of the United States. The merger will be immediately accretive
to UnitedHealth Group earnings without any benefit from operational synergies or
other business development upside, both of which do exist and will provide
additional future value. The terms are quite straightforward. UnitedHealth Group
will issue new shares using a fixed exchange ratio of 0.82 United Shares for
each Mid Atlantic share. Mid Atlantic shareholders will also receive a cash
payment of $18 per share. It is anticipated that the equity portion of the
transaction will qualify as a tax-free exchange. The Board of Directors of both
UnitedHealth Group and Mid Atlantic have given final approval to this
transaction. We will pursue the necessary regulatory approvals and foresee the
transaction closing in the first quarter of 2004. The total consideration for
the transaction will include a combination of approximately 38.6 million net
United shares and $860 million dollars in cash, which after proceeds from option
exercises and residual shares, will net to about a $610 million dollar cash
outlay for us. This totals about $2.7 billion dollars for the transaction,
representing our net consideration related to this merger. The stock to cash
ratio will maintain our balance capital structure. And on an economic basis,
this transaction meets our segment specific weighted cost of capital standards,
based on conservative expectations of MAMSI's future cash flow. Going forward,
Mid Atlantic Medical Services will become the regional center for our operation
serving the broad mid-Atlantic region from Virginia to southeastern
Pennsylvania. United HealthCare will combine its local operations in these
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markets with MAMSI. Mark Groban and his team, who have so ably led the company
the last several years and established the preeminent business and services
platform in this area, is going to head the region. His existing senior
management will remain in place and will be joined by a number of strong people
our own organization has brought into the region in recent years. Senior
management of MAMSI has entered into new employment agreements, positioning the
company to continue its very strong performance. We will continue to use the Mid
Atlantic Medical Services identity. What has been done very well by our
respective organizations is going to continue. What has been sub-optimal will be
improved to its optimum. There will be an even more stellar enterprise under
this new leadership with the extensive resources and development capabilities
that are now going to be available. In addition to being financially favorable
on a go forward basis, this combination has immense strategic value which can
further advance financial performance. MAMSI is the market leader in an
important, high growth, vibrant marketplace. The reputation of the company among
customers and care providers is excellent and the company is a premier
performer. MAMSI will strengthen United HealthCare's present and that of
Uniprise along the eastern seaboard from the Carolinas to Pennsylvania. I should
note that in the mid-Atlantic area comprised of Maryland, Virginia, West
Virginia, Washington, D.C. and Delaware, MAMSI directly covers over 920,000
people, United HealthCare around 200,000 and Uniprise serves another 280,000
people or so. This represents over 1.4 million individuals for these businesses
alone. Adding MAMSI's 70,000 plus members in North Carolina, South Carolina and
Pennsylvania to our market participation in those states produces another 1.15
million people for these same types of services. Additionally, another million
or so people participate in various network [inaudible] based programs managed
by MAMSI. One of the principle strategies supporting this merger is the
tremendous value carrying over from MAMSI to Uniprise for both existing clients
and those not currently served. For example, there are some 30 major fortune 500
companies headquartered in the region and Uniprise serves only one of these
today. We intend that this is going to change. In MAMSI's existing relationships
with these large, multi-side employers is going to significantly be advanced by
accessing the Uniprise services and networks. In addition, there will be very
significant opportunities for our other products and services, particularly
those with specialized care services through United Behavioral Health, Dental
Benefit Providers, Spectera Vision and Optum Consumer Health Information. For
seniors we expect expansion of both our Ovations Medicare Supplement product in
conjunction with AARP and services to select Evercare locations in this area.
Finally, our Ingenix database will be strengthened by the addition of a new
population based health information from a significant cohort, significantly
expanding the value and usefulness of our overall data for care providers,
employers and a host of other clients. These opportunities, as we said, are
potential, albeit high probability ones. But is more immediate is the fact that
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our combination will allow us to even more effectively procure health services
on behalf of our customers, based at favorable rates, thus helping to further
improve affordability. We will be serving up to three and a half billion
individuals and purchasing healthcare on their behalf. The new technology tools
and service platforms, including real-time web services for important
transactions and information will be introduced to customers, care providers and
brokers and agents to make their lives simpler and more productive. Let me turn
this over for the moment, to Mark Groban for some comments on the business
combination, as well as preliminary third quarter results from Mid Atlantic
Medical Services. Mark ?
MARK GROBAN, M.D.: Thank you, Bill. First off, I, I want to say how
very excited I am about the future potential embedded in this combination. Like
MAMSI, UnitedHealth has a progressive culture, disciplined management, a
commitment to the study and application of data and a strong track record of
value creation. As we work closely together in the coming weeks, I know our
people and their people will be as impressed as I have been about the tightness
of the fit between us. I'm also pleased to report that third quarter 2003
results will manifest a continuation of a year's long pattern here at MAMSI. Our
membership is strong, despite a weak economy, our operating costs are well
contained and our margins are expanding. We are still finalizing calculations of
our medical costs incurred in the quarter, but we have generally observed some
moderation in utilization trends in 2003, similar to United HealthCare's
experience. I would prefer to update you on the details when our information is
complete. We will release our earnings on November 5th after the market closes,
and will hold our customary call on the morning of November 6th. While our
information is still incomplete, we are in a position now to estimate that we
will earn approximately $1.08 to $1.10 per share in the quarter, which will
include the benefit of some favorable development of prior period cost
estimates, principally from earlier quarters in 2003, as you would expect based
on a moderating utilization trend. This $1.08 to $1.10 compares very favorably
with the $0.94 that is expected this quarter, and compares favorably to the
previous year's earnings per share of $0.54 per share. So almost 100% increase
in that. That result for the year would bring is into the range of $4.00 to
$4.08 per share for the full year 2003, which compares to current estimates of
approximately $3.64 and last year's earnings of $2.34. In 2004, we would see
earnings growing above 15%, as, as has been our target each and every year,
through modest growth, disciplined pricing and tight SGNA control. That would
suggest to me an earnings baseline target in the $4.60 to $4.70 per share on a
full year standalone basis. Any synergies post-closing will enhance that gain.
While I would reiterate that the real upside in this deal is the potential for
growth across multiple businesses in 2005, 2006 and 2007. I'm confident that our
results will be a material, positive contributing factor to UnitedHealth Group's
overall performance in 2004.
WILLIAM W. MCGUIRE, M.D.: Thank you, Mark. Bob Sheehy, do you have a
few comments for us?
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MR. ROBERT J. SHEEHY: Yeah. Thanks, Bill. The combination of MAMSI
and United HealthCare is consistent with our local focus national and scope
approach. MAMSI has been very successful in developing strong relationships with
its customers and physicians through and intense local focus on delivering high
quality service and affordable healthcare options. The combination with United
gives MAMSI the ability to broaden their customer relationships through United's
product, product offerings, multi-site capabilities and technology. United's
customers will benefit from MAMSI' innovative programs, focusing on the
healthcare needs of the region's employers and consumers, combined with the
collective purchasing power of over 3.5 million individuals. We're really
looking forward to combining our resources with MAMSI in one of the largest
growth markets in the United States.
WILLIAM W. MCGUIRE, M.D.: Thanks, Bob. I think I'll follow on Mark's
projections with a summary of our outlook for the future. As you know, we
recently reported quite strong third quarter results with earnings per share up
38% year over year and expect full year results for 2003 of around $2.91, which
would be up 37% for the year. We took our 2004 outlook up to a baseline of 21%
to 22% growth over this year. Our outlook remains at least that positive, and we
will see modest secretion due to this transaction, without consideration of any
synergies. We expect even better gains to accrue from this merger in 2005, thus
further firming up our very early and very positive view of that year, which we
expressed on our last quarter conference call. More details on these topics will
be provided on our November 20th investor conference with you in New York City.
UnitedHealth Group has realized an outstanding history of growth and performance
by focusing on several core competencies, building multiple business segments
that serve distinct markets and customers, and striving for superior operational
performance. This combination fits our historic M&A model by improving existing
businesses and realizing new platforms for future growth, and doing it at a
price that is positive for shareholders in the future. So again we might ask
what's this combination about. It's about addressing key and strategic market
representation, about strengthening all of our offerings. It is about thoughtful
expansion of our franchise in this market and access to 30 fortune 500
companies. It is about responsible financial discipline in the merger and
acquisition domain. It includes pull through of our diversified business model,
extending our distribution significantly. And it is about opportunity to infuse
technology into a marketplace we think is behind our own technological services.
I think it's important to remember that our underlying goal is to help improve
the healthcare system on behalf of the various constituencies we serve. This
merger with another outstanding company, constructed on solid financial terms
that will accrue value to future shareholders as well as customers and business
partners, continues that direction. We're honored to join with Mid Atlantic
Medical Services to more effectively address the challenges of the health and
well being of this country. Thanks again for joining us. Mark, Steve Hemsley,
Bob Sheehy and I will now take a few questions.
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OPERATOR: At this time I would like to remind everyone in order to
ask a question, please press star and the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster. Your first question
comes from Cheryl Skulnick [phonetic] of Vocal Global Partners.
MS. CHERYL SKULNICK: Good morning, gentlemen. This is a very
interesting transaction and one that, that clearly has a lot of appeal, but I do
have to ask a question and sort of get it out in the open. Some might criticize
both your transaction and the other one that occurred this morning as a way for
an industry that might be looking at slower than anticipated growth to not so
much mask that growth, but to be able to maintain growth rates and expectations
for growth and improving financial performance through acquisitions rather than
through fundamental either membership growth or market share penetration or new
product development. Could we get your reaction to that please?
WILLIAM W. MCGUIRE, M.D.: Sure, Cheryl. I think; number one, I can't
comment on any other transaction.
MS. CHERYL SKULNICK: Understood.
WILLIAM W. MCGUIRE, M.D.: Different people have to create their own
strategies. We, as I said; previously stated our growth expectations for next
year and even projected into '05 and those were anything, were nothing less than
very robust. If you recall, we talked about one million people or more for
Uniprise and United HealthCare. We talked about several million people for
Specialized Care Services, a quarter of a million people in Ingenix and just its
supplemental products, etc. So; and we talked about EPS growth of baseline 21%
to 22% off these tremendous numbers this year. And of course you recognize that
the company has a over 10 year now compounded annual growth rate and EPS of 26%
with comparable cash flow. So I think at the baseline we are very comfortable
with or without acquisitions in the quality of growth and the magnitude of
growth and would put it up with almost any business and any industry in this
country. That said, we think this is the kind of thing that done prudently and
intelligently actually improves even the longer term prospects above and beyond
that. The business is all about doing the better things for customers. We have
many businesses this allows us to even strengthen those already anticipated very
strong results. So we don't need to do acquisitions to improve our growth rates
or camouflage our growth rates, or to smokescreen our earnings. I think they're
out there. They're quite public. They're very transparent. We will perform in a,
at a very strong level. This is just a great opportunity for two companies with
strong histories, to come together and, and do even better.
MS. CHERYL SKULNICK: I appreciate that. And your reserving policy in
your risk business has been quite conservative and to your credit, quite
prudent. Do you anticipate using the United methodology going forward? Will we
see any kind of issues arising out of that? Or opportunities?
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WILLIAM W. MCGUIRE, M.D.: I think it would be appropriate to say that
we will use the same methodologies going forward, but it's also prudent to say
that Mid Atlantic's reserving policies have also been I, I think a comparable
approach and indeed when we did our own due diligence we were pleased to see a
consistency in approach, integrity around it, high quality people doing that.
MS. CHERYL SKULNICK: Uh-huh. And then finally one of the big issues
historically in these kinds of combinations has been the one of technology
integration and I think I heard you say that bringing technology, your
technology and approach to it, into the Mid Atlantic market per say, would be
one of the priorities here. Will you be telling us in November or can you give
us the sense now of, of what steps you're taking in the, in that regard to make
sure that the transition goes smoothly?
WILLIAM W. MCGUIRE, M.D.: Yes. We will do both. We will have more to
say in November for sure. We can give you a little bit now. I would say that my
reference to the technology though into the market is really more around the,
the lines of things like internet based services for transactions, fulfillment
of information flow and related things between consumers and providers
[inaudible] card services, etc.
MS. CHERYL SKULNICK: [Interposing]. Oh, okay.
WILLIAM W. MCGUIRE, M.D.: But Steve could comment briefly on the
integration as well, which is a separate issue.
MS. CHERYL SKULNICK: Thank you.
MR. STEPHEN J. HEMSLEY: The only thing I would say is that this;
well, first of it's, it's an isolated market so it really allows you to focus on
the activities of that marketplace. And, and it will also happen over time. This
is not going to be something that is going to be particularly disruptive. It
will happen in phases. There will be a financial integration in terms of making
sure the organizations are on the same financial systems and footings. And the
first step I would say is, I'd called connection. And that is to bring the, the
MAMSI technology within the, the same broad community as the rest of
UnitedHealth Group's technology, which allows for, for the, the ease of data,
the, the very fluid environment and allows the internet applications to apply,
etc. In later stages there would be a, a conversion in terms of moving to
platforms. Moving to a single platform. But that would happen in, in natural
renewal cycles. There is no necessary rush to do that, and it would be costly
unless you go at a, on a, on a renewal basis, which is the way we've approached
the integration for other businesses and indeed, the way we've gone to a single
platform. So that's the expectation here.
MS. CHERYL SKULNICK: Great. Thanks so much.
MARK GROBAN, M.D.: Also, Cheryl, I would make one comment. As, as you
probably know, MAMSI operates on a single platform.
MS. CHERYL SKULNICK: Yeah.
MARK GROBAN, M.D.: So that will certainly make the integration move
along quite smoothly I believe.
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MS. CHERYL SKULNICK: That usually will help if you don't have to
first integrate several into one and then one into the other. Thank you so much.
MARK GROBAN, M.D.: Part, part of the importance of this for everyone
is that; you know, we're also talking about multiple businesses here and I can't
emphasize that enough that, you know, they operate on different domains and that
we want to get that through. So thank you, Cheryl.
WILLIAM W. MCGUIRE, M.D.: Next question.
OPERATOR: Your next question comes from Michael Waldoor [phonetic] of
Paulson & Company.
MR. MICHAEL WALDOOR: Gentleman, good morning. Is there any break-up
fee in the merger agreement and can you give us some context on how you guys
came to, to this transaction?
WILLIAM W. MCGUIRE, M.D.: The question was are there any break-up
fees?
MR. MICHAEL WALDOOR: Uh-huh.
WILLIAM W. MCGUIRE, M.D.: Yes. There are usual deal protections as
you would expect in a merger and those will come out with the filing. You'll be
able to see those.
MR. MICHAEL WALDOOR: Okay. When do you guys expect to file the, the
merger agreement and the proxy?
WILLIAM W. MCGUIRE, M.D.: Dave, David?
MR. DAVID J. LUBBEN: We expect we'll be able to file the registration
statement here in the next several days.
MR. MICHAEL WALDOOR: Okay. Great.
WILLIAM W. MCGUIRE, M.D.: That's David Lubben, General Counsel.
MR. MICHAEL WALDOOR: Thank you. And the, the exchange ratio, is that
fixed or is there any sort of election involved?
MR. DAVID J. LUBBEN: No. That is fixed.
MR. MICHAEL WALDOOR: Okay. Thank you.
OPERATOR: Your next question comes from Scott Kim of CIN.
MR. SCOTT KIM: Hi, guys. Just a quick question. Do you guys see any
overlap in the markets between the two companies? I guess with; you're both
AmeriChoice or the AARP?
WILLIAM W. MCGUIRE, M.D.: Well, I think the, the business about
AmeriChoice will work with the Mid Atlantic folks and determine if there is
anything new in this relationship combination that improves the operation
opportunities for AmeriChoice in the markets. They are not active in those
markets right now but I think it will be a, a joint view that they will develop
working with that. Relative to Ovations, there may be, particularly depending on
what happens with MediCare legislation, some expanded opportunities for the
Ovations products. I alluded to things like Evercare, that kind of stuff. We'll
just sort those out as they come. Each of the businesses will be exploring how
to best take advantage of this new founded relationship, just as the Mid
Atlantic people will be looking at how they can expand the services for the
local operations of Fortune 500 companies they deal with through their
affiliation with Uniprise.
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MR. SCOTT KIM: Okay. Thank you.
WILLIAM W. MCGUIRE, M.D.: Okay. Well, I think our, our time is pretty
well up for, for this kind of thing. I would say that everyone that's listening,
you should look carefully at all the numbers. We've already seen a few things
out that misstate various components of the transactions, total price, etc. You
have to look at this carefully, look at the premiums and build those into your
models. We view this, as I said, as an exciting opportunity. We're, we're very
pleased to work with; together with such a quality organization and truly
believe that the short term as well as long term impacts of this are going to be
quite profound and positive, starting with the customers, the business partners,
including the care providers, and ultimately because of those successes, our
shareholders. So thanks for joining us. You can reach us via the phone if you
need to. Good-bye.
OPERATOR: Thank you for participating in today's conference call. You
may now disconnect.
[END OF RECORDING]
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