As widely reported, Nevada Governor Jim Gibbons has again publicly expressed his interest in the Sierra Health Services Inc. (SIE) - Unitedhealth Group, Inc. (UNH) merger, spurred on apparently by UNH's recent fines imposed in California. And again, Mr. Gibbons remains somewhat ambiguous in his position on in continuing to resist outright opposition to the proposed merger and instead simply encouraging the Department of Justice to "carefully examine the potential challenges that a merger between United Health and Sierra Health Care could create for Nevadans." This is a somewhat hollow (if not comical) request from Mr. Gibbons, who should be completely aware of the nature of the DOJ review in this case. It must be assumed that the DOJ staff found these comments humorous and wholly inconsequential to their current review.
Although the HSR process has exceeded the initial expectations in this case, this publication continues to believe that the bottom-line aspects of this deal will ultimately prevail. The bottom line, of course, is that from an antitrust perspective -- if applied literally here -- this transaction should be allowed under HSR, either conditionally or with conditions to address the Clark County overlap.
While this deal can not be directly compared to the recently completed Midwest Air Group (MEH)-TPG Capital, both have a distinct similarity: a single overlap. Granted, the overlap in this case is far more complex and therefore requires much more deliberation on the part of the DOJ, but the nature of this single overlap simply is not one which can not be remedied without much difficulty. It will be stated again that the Nevada DOI's conditions should effectively solve any potential issues for consumers and these conditions may simply be reinforced by the DOJ as further oversight. At the end of the day, in a situation where the overlap is geographical and isolated such as this case, the regulatory responsibility should be primarily that of the state regulator. That is precisely the purpose of state insurance regulators -- the DOJ's ultimate responsibility in this case is to ensure the UNH will not adversely affect competition on a larger scale through this and other transactions.
In short, the DOJ delay here is considered to be a direct result of late political and continued lobbyist participation, rather than some unresolvable antitrust issue. The issue that exists is fairly obvious and should not be an obstacle that can not be overcome with the conditions in place or additional, DOJ-imposed conditions in Clark County.
A successfully completion of this transaction within the next two months remains the current expectation.
Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.