Why UnitedHealth's Filing Catch-Up Doesn't Matter

UnitedHealth (UNH-NYSE) has finally become current in its SEC Filings as of this morning, but this shouldn’t be that big of a surprise.  The company did go back and restate earnings over stock option grants to reflect a $1.55 Billion reduction in earnings for 2006 and prior years to 2003.  This has been perhaps the largest of the telegraphed options cases out there and this should be no surprise.

The truth is that as long as Bill McGuire, the CEO that backdated options to a monstrous personal empire-building tune, didn’t pilfer actual funds and didn’t get involved in off-balance-sheet transactions that this was really more of media frenzy than it was a shareholder fiasco.  To prove this, there have actually been NO calls for the company to dissolve strangleholds in certain markets and there have been NO true shareholder revolts other than the attempt to get some of that money back after forcing McGuire out.  Its prized AARP deal was never really deemed at risk either.

It is ridiculous that the board let that man get away with so much, even if he has relinquished (or will have to) some of that money.  He isn’t the founder and he grew that company through major acquisitions.  Has the consumer been a beneficiary of fewer healthcare choices? Yeah right.  Have the shareholders made that much since the Pacificare merger?  No, in fact they are down.  There is a silver lining: the shares are actually up roughly 20% since the 2006 lows and this really was limited.

The company has grown to where it will be difficult for it to do more than smaller regional
mergers at this point.  They are up 1.7% to $53.85 on the day; and its 52-week trading range is $41.44 to $57.86.  Volume is already close to double its average daily volume and now sits at 11.5 million shares just after 2:00 PM.  The company had already telegraphed that it was "becoming current" in its filings on more than one occasion.

The good news is that this removes the "investability" issue for those who are barred from investing in companies which are either not current in SEC Filings or in companies that have excessive "unknown risks" for litigation.  Mr. McGuire may still have some pain to take, but this at least gets the current company back to operating on its own merits.

It will be interesting to see how the company performs in a year where premiums are expected to be low ahead of the 2008 election cycle, as many insurers tend to lighten up on their "increased insurance premium trends" ahead of shift changing elections.  How much of that is "opinion-based" rather than statistical?  Ask health insurance brokers who are friends or family. 

The last bit of good news is that after the earnings came in, it can now resume its share buyback now that it has resolved its delinquent filing issues.  It has 130+ million shares available under the current buyback plan when it resumes, and it would probably be prudent to assume that the company will begin some accelerated buybacks.

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.