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ConnectiCare Stock Sale Funds Foundation
Connecticut Health Foundation Receives $122 Million For Stock Holdings
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Business New Haven
1/22/2001
By: Mitchell Young
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The process of converting the Farmington-based ConnectiCare from a not-for-profit HMO to a private company has been completed. That completion resulted in the sale of its stock for $122 million and an aditional investment of $20 million by two private New York investment firms, the Carlyle Group and Liberty Partners. Proceeds from the sale went to the Connecticut Health Foundation Inc., an independent charitable foundation.
In July 1999, ConnectiCare converted from not-for-profit to for-profit status. However, lack of profitability and a resulting dearth of investor interest in the HMO sector at the time slowed the process of completely privatizing and recapitalizing the HMO. Since then, ConnectiCare and many other leading HMOs have raised rates and reduced costs, spurring profits - and renewed investor interest.
Trumbull-based Oxford Health Plans (NASDAQ: NM OXHP) has watched its stock rise from a low of $12.25 to more than $42 per share in the past year as the company returned to profitability. The stock has since traded down to approximately $35 per share. Similarly, Health Net Inc. (NYSE: HNT) (formerly Foundation Health Plans), the California-based parent of Physicians Health Services, has seen its stock rise from a low of 7 to its current $25 in the past year.
Under terms of that conversion, the nonprofit ConnectiCare became the Connecticut Health Foundation Inc. (CHF), an independent charitable foundation. The newly created for-profit entity was named the ConnectiCare Holding Co. Inc., owning the HMO business, ConnectiCare Health Plans Inc. The foundation was awarded 100 percent of ConnectiCare Holding Co. common stock and $10 million of the company's preferred stock. CHF was established to “benefit the health and well-being of residents statewide.”
Concurrent with ConnectiCare Holding Co.'s raising capital from investors, CHF sold the common stock for $122.5 million, bringing its total assets to more than $132.5 million. Attorney General Richard Blumenthal approved the original for-profit conversion and oversaw and approved the stock sale to ensure that the foundation received the full value of the former non-profit's assets.
As a result of the sale, CHF will have $130 million in funding for projects and initiatives. According to Blumenthal, this funding makes the foundation the largest health care-related philanthropy in Connecticut.
Said foundation Chairman Leo Canty, “We are eager to begin fulfilling our mandate to help build a healthier Connecticut.” According to Canty, CHF will concentrate on initiatives to reduce ethnic and racial health disparities as well as to support oral health and pediatric mental health.
The transaction also brings an additional equity investment of $20 million to the HMO. ConnectiCare is expected to use those funds to continue its expansion into western Massachusetts and to enter the Westchester County (N.Y.) market. Industry sources say ConnectiCare is currently eyeing acquisitions in both markets.
One potential acquisition might be Health New England, with 100,000 members in western Massachusetts.
On October 4, Harvard Health Plans returned 47 percent of ownership of Health New England, a regional HMO serving western Massachusetts, to Baystate Health System.
Not-for-profit Baystate is the largest health-care delivery system in western Massachusetts and the parent corporation of Baystate Medical Center in Springfield, Franklin Medical Center in Greenfield, Mass. and Mary Lane Hospital in Ware, Mass. as well as other affiliated health-care providers.
Previously ConnectiCare Holding Co. Inc. reported consolidated net income of $17 million for the first nine months of 2000, compared to $3.7 million for the same period of 1999. For the third quarter of 2000, net income was $7.1 million versus $1.9 million for the same period a year ago. The company said results in 2000 reflected continued improvements across all lines of business.
The company reported that both revenue and membership grew significantly over the same period last year. Consolidated revenue for the nine-month period totaled $400 million, an increase of 27 percent over the equivalent period in 1999, a consequence of growth in commercial and Medicare business. Membership now stands at 242,000, an increase of nearly 12 percent over the previous year.
ConnectiCare's new board will include three management representatives as well as five directors appointed by Carlyle and Liberty.
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