PacifiCare execs could earn millions in UnitedHealth deal

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Associated Press

LOS ANGELES, CA — The proposed acquisition of PacifiCare Health Systems Inc. by UnitedHealth Group Inc. could be worth nearly $230 million to top executives of PacifiCare, if the deal goes through by Feb. 1, according to documents filed with the state.

Most of the money would come through accelerated vesting of PacifiCare stock options granted several years ago, when the company was on the verge of filing for bankruptcy and needed talented executives.

Another $84.5 million in signing bonuses and UnitedHealth stock options would be promised to PacifiCare executives if they stayed with the new firm, the companies said in the Monday filings.

Cypress-based PacifiCare said July 6 that it had agreed to be acquired in an $8.1 billion deal by Minnetonka, Minn.-based UnitedHealth, the nation’s second-largest health insurer. The companies hope to complete the deal by Sept. 30.

State regulators said they would review the filings carefully – especially regarding executive compensation. Hearings will be held in the next few months.

“When you look at someone who is getting millions of dollars, it seems excessive to anyone whose framework isn’t Wall Street,” said Cindy Ehnes, director of the state Department of Managed Health Care, which regulates HMOs.

“For all of us who are agonizing about all the people who are going without health care, it’s very difficult,” she said.

The Foundation for Taxpayer and Consumer Rights said it will demand that the state oppose the deal unless executive payouts are limited and other steps are taken.

The filings said 18 PacifiCare executives would share $14.5 million in “change in control” payments. Chief Executive Howard Phanstiel and 20 other senior executives were not among them.

All 39 top PacifiCare executives would share in $215 million in previously granted stock options that would vest immediately. An additional $59 million in stock options for 691 other employees also would vest immediately.

Analysts described the compensation as a payoff for the gamble executives took in joining the troubled company and helping a turnaround that began in 2002.

“It’s easy to look at the numbers in hindsight and say, ‘Wow, why are these guys making so much?”‘ said Scott Adelson, a senior managing director and co-head of investment banking at Houlihan Lokey Howard & Zukin in Los Angeles. “But here was a company that was in trouble and they got granted options and other bonuses to attract and retain good people,” he said.

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