Merger Pact Entered Into by Greatwest

Greatwest Hospitals Inc. of Santa Ana and Independence Health Plan Inc. of Southfield, Mich., Monday said they have signed a definitive agreement to merge IHP with a subsidiary of Greatwest.

The proposed $120-million merger is a key part of Greatwest’s recently announced plan to sell its hospitals and hospital-related businesses to focus on the fast-growing health maintenance organization (HMO) industry.

Greatwest previously acquired 51% of the 105,000-member Michigan health plan for about $61 million. Under the agreement, Greatwest will buy the remaining shares for about $59 million and the Michigan health plan will operate as a wholly owned subsidiary of Greatwest.

The merger with IHP, once canceled but restructured a few weeks later, calls for IHP shareholders to receive $26 a share. At least 20% of the total per share price will be in cash, according to Harlan Loomas, chairman and chief executive officer of Greatwest.

The final merger agreement, which requires shareholder approval, allows both companies to decide whether the $26-a-share price will be in cash or a combination of cash and subordinated debentures, which may be converted into Greatwest stock. Loomas said in a phone interview that the value of the debentures and the exact combination will be established in consultation with investment bankers and announced the day before the deal closes.

“You price it the day before you do the deal,” said Loomas, adding that this is the only way to be sure the shareholders are given the proper value for their shares.

Loomas said Greatwest is also working on a new name to better reflect its change of direction.

On Dec. 27, Greatwest announced it was getting out of the hospital business to concentrate on operating a nationwide network of health maintenance organizations. The divestiture includes seven hospitals in Southern California, all of which will continue to operate until they are sold.