UnitedHealth stock stays strong

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By The Associated Press | Tuesday, October 17, 2006 12:08 AM CDT | () comments

MINNEAPOLIS (AP) — UnitedHealth Group Inc. will lose the CEO that built it into a health insurance powerhouse, but Wall Street yawned Monday.

UnitedHealth shares traded in a narrow range and analysts said they had expected the departure of Chairman and CEO William McGuire because of apparent stock options backdating. With McGuire gone from the boardroom immediately and set to retire as CEO by Dec. 1, the company’s board promoted President Stephen Hemsley to CEO.

UnitedHealth shares slipped $1.21, or about 2.5 percent, to close at $47.54 on the New York Stock Exchange. They’re off from a high of $64.61 in December, with much of that loss since questions about the company’s stock options timing arose in March.

By making Hemsley CEO, UnitedHealth’s directors signaled they would keep the company headed in the same direction, which has boosted UnitedHealth’s stock price exponentially over the past 15 years and transformed it into the nation’s second-largest health insurer. Hemsley has been at the company since 1997 and has run its day-to-day operations since 1999.

“The management uncertainty is largely resolved, and the worst case scenario (which would have been losing both Dr. McGuire and Mr. Hemsley) has been seemingly averted,” Morgan Stanley analyst Christine Arnold wrote in a note to clients on Monday.

UnitedHealth said Sunday that McGuire would step down after a company-commissioned report found widespread, systematic backdating was probably the explanation for his extraordinary good fortune in receiving stock options priced at the lowest possible point in eight different quarters.

Nothing in the report suggests that Hemsley was involved in any backdating, although the report concludes that he received stock options that were “likely backdated.”

“I don’t see how Hemsley can be separated from McGuire’s actions over the last eight years,” said Elizabeth Senko, an analyst at Williams Capital Group.

Referring to comic strip buddies known for getting into trouble together, she said: “They’re really Mutt and Jeff. I can’t believe that he was unaware of what was going on. Now where that falls under his legal responsibilities is another matter.”

She said Hemsley has been the architect of many of UnitedHealth’s successes since he joined the company — but he has never been the public face of a company the way he will be as CEO.

“Hemsley has for years been viewed as the individual most likely to ultimately succeed McGuire and is very highly respected,” Bear Stearns analyst John Rex wrote in a note to clients. He added, “Some of the uncertainty surrounding the stock over the past months related to whether he would be tainted also, a factor that now appears resolved.”

McGuire issued a statement saying he has worked closely with Hemsley for eight years.

“He has been a full partner in creating the vision of (UnitedHealth) and helping to achieve it,” McGuire said.

UnitedHealth said it had turned over the report by the law firm of Wilmer Cutler Pickering Hale and Dorr LLP to the Securities and Exchange Commission and the Justice Department. UnitedHealth disclosed in May that the SEC and the U.S. Attorney’s office in Manhattan were investigating its stock option grants.

SEC spokesman John Nester in Washington declined comment on the report or any other aspect of the matter.

At least 34 senior executives or directors, including nine CEOs, seven finance chiefs and seven general counsels have been fired or have stepped down at 17 companies as of Monday.

By now, investors seem to be somewhat inured to fallout from the options scandal, wrote Thomas Carroll, an analyst at Stifel Nicolaus & Co. He noted that about 100 companies are under SEC investigation and a recent study showing 2,000 may have backdated options.

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On the Net:

UnitedHealth report: http://www.unitedhealthgroup.com/news/index—news.htm

Q-C TIES

UnitedHealth Group has a strong presence in the Quad-City area. The nation’s second-largest health insurer closed on the purchase of Moline-based Deere & Company’s health care operations in February.

Deere sold Deere Health Care Inc. for about $500 million in cash. In the deal, UnitedHealthcare also purchased the John Deere Health Care headquarters in downtown Moline.

UnitedHealthcare representatives said the Quad-City area’s 80,000 customers who use John Deere Health Care would not see any immediate changes because of the takeover.