McGuire's deal is focus of U.S. Senate inquiry

Some of the U.S. Senate's most influential members are taking aim at the multimillion-dollar severance package of outgoing UnitedHealth Group Inc. CEO William McGuire.

Leaders of the Senate Finance Committee on Wednesday asked the Minnetonka company to provide specific information about McGuire's severance package, as well as his employment contract.

"I want to know how a top executive can lose his job for allegedly defrauding his own company's investors, but still get rewarded with a billion dollars for doing it," committee Chairman Charles Grassley, R-Iowa, said in a prepared statement.

"Congress has a duty to the taxpayers to find out what happened at UnitedHealth and figure out what to do to stop this flood of backdating scandals."

Grassley, along with ranking minority member Max Baucus, D-Mont., made the request to UnitedHealth Chairman Richard Burke, soon-to-be Chief Executive Stephen Hemsley and James Johnson, chairman of the board's compensation committee.

Baucus accused McGuire and other executives tainted by backdated stock options of "gaming the law to avoid paying their fair share of taxes on stock options and other benefits."

On Sunday, McGuire resigned as chairman and agreed to step down as CEO by Dec. 1. His decision came after an independent review of the company's stock-option program for senior executives found that the options were likely backdated to a low point in the stock's value to maximize profit when the options were exercised at a higher price.

McGuire has more than $1 billion worth of unexercised options. His employment agreement also provides for a lump-sum payout of $6.4 million when he leaves the company and an annual pension of $5.09 million, according to the 2006 proxy statement.

UnitedHealth said Sunday that it is "engaged in discussions" with McGuire over terms of his departure, including his financial benefits, raising the prospect that the CEO could be leaving under different terms than those called for by his contract.

Among the records sought by the Finance Committee are McGuire's employment contract and supporting documentation, any benefits McGuire will receive after he leaves the company, the names of advisers and consultants who helped draft the employment agreement, the amount of federal tax deductions claimed by UnitedHealth with respect to McGuire's compensation since 1994 and steps being taken "to remedy the various failures" cited in the independent review regarding executive compensation.

The committee set a Nov. 9 deadline for UnitedHealth to respond to the requests.

In a separate development Wednesday, UnitedHealth said it arranged a $7.5 billion line of credit for "working capital purposes," as well as to deal with any litigation related to the company's debt.

On Aug. 28, the company received a notice of default from a group claiming to hold UnitedHealth debt securities. The company has said it believes it is not in default and "intends to defend itself vigorously," according to a filing with the Securities and Exchange Commission.

Sheryl Skolnick, a stock analyst at CRT Capital Group in Stamford, Conn., said the 364-day revolving credit facility is "insurance" in case the company loses its legal battle with owners of its debt and loses access to capital.

"What they have essentially just done is to arrange exactly enough money on demand to pay off all the debt in case any or all of it is in default," she said.

"It's a huge vote of confidence in the company," she added. "That they could arrange $7.5 billion, virtually overnight, is remarkable."

David Phelps • dphelps@startribune.com • 612-673-7269 Chris Serres • cserres@startribune.com • 612-673-4308