Coventry Completes $1.8 Billion Acquisition Of First Health
February 02, 2005
Copyright 2005 A.M. Best Company, Inc.
BestWire
February 01, 2005
625 words
COVENTRY COMPLETES $1.8 BILLION ACQUISITION OF FIRST HEALTH
BETHESDA, Md. (BestWire) - Health insurer Coventry Health Care Inc. has completed its $1.8 billion acquisition of First Health Group Corp., two weeks after the companies settled a shareholder class-action lawsuit related to the merger.Under the merger agreement, each outstanding share of First Health common stock was converted into a right to receive $9.375 cash and 0.1791 shares of Coventry common stock. In connection with the merger, Coventry is issuing about 16.5 million shares of its common stock to former First Health shareholders.
On Jan. 14, the two insurers said they had settled a lawsuit filed Oct. 20, 2004, against First Health, First Health's board and Coventry. Coventry (NYSE:CVH) and First Health (NASDAQ:FHCC) denied the allegations in the lawsuit but agreed to provide investors with more information, including the merger's background, interests of certain people in the merger, the opinion of First Health's financial adviser and a comparison of rights for Coventry shareholders and First Health shareholders (BestWire, Jan. 14, 2005).After the proposed merger was announced Oct. 14, A.M. Best Co. placed the financial strength ratings of B++ and B+ (Very Good) of the insurance subsidiaries of Coventry under review with negative implications. A.M. Best also placed its ratings of A- (Excellent) of First Health's insurance subsidiaries under review with negative implications.On Jan. 14, A.M. Best affirmed the financial strength ratings of the Coventry units with a stable outlook and removed them from under review. The rating actions followed A.M. Best's review of the financing and integration strategy for the pending First Health acquisition, A.M. Best said."The stable outlook on the financial strength ratings reflects the improved level of capitalization and earnings at the insurance subsidiaries," A.M. Best said. "The Coventry organization has had strong earnings growth for the past several years, with net income tripling from 2001 to 2003, with much of the improvement achieved from the turnaround of poor performing acquisitions. However, A.M. Best does expect the earnings trend to moderate as most of these acquisitions have been integrated and become profitable."In connection with the acquisition, Coventry entered new, senior, unsecured credit facilities consisting of a $300 million five-year term loan, all of which was drawn at closing, and a $150 million, five-year revolving credit facility, of which $65 million was drawn at closing.Coventry also closed the previously announced private placement of $250 million aggregate principal amount of its 5.875% senior notes due 2012, and $250 million aggregate principal amount of its 6.125% senior notes due 2015. The senior notes are general unsecured obligations of Coventry and rank equal in right of payment to all of Coventry's existing and future senior debt, including its existing 8.125% senior notes due 2012 and its new credit facilities.On Jan. 14, A.M. Best assigned a debt rating of "bb+" to Coventry's $500 million of senior unsecured notes. A.M. Best removed from under review the debt rating on Coventry's $170.5 million of 8.125% senior notes due 2012 and the issuer credit rating of "bb+."Bethesda, Md.-based Coventry used the proceeds from the new credit facilities and senior notes, together with approximately $221 million of cash on hand, to fund the First Health acquisition, including the repayment of First Health's outstanding bank debt and related transaction expenses.On the morning of Feb. 1, Coventry's stock was trading at $58.72 a share, up 3.2% from the previous close.(By Regina Whitmer)
February 2, 2005
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