April 13 (Bloomberg) -- WellPoint Inc.’s $4.7 billion sale of its pharmacy-benefits unit will help the health insurer lower its drug costs and let it double its share-buyback plan, Chief Executive Officer Angela Braly said.

WellPoint, the second-largest U.S. health insurer by sales, said today it would sell its NetRx unit to Express Scripts Inc. for cash and stock. The shares of WellPoint and Express Scripts, the third largest drug-plan manager, surged, with Express posting its biggest gain in 3½ years.

The deal includes a 10-year contract for Express Scripts to keep managing pharmacy benefits for WellPoint, which is based in Indianapolis. Enlarging St. Louis-based Express will give it more power to negotiate lower prices with pharmaceutical companies, WellPoint’s Braly said on a conference call today. President Barack Obama is pushing for lower health-care costs as part of a move to expand coverage.

“There’s a great cultural fit” between the two companies, Braly said. “There’s a great fit on thinking about clinical outcomes focused on the consumer. There are many ways in which we think they are obviously the best transaction for us.”

WellPoint will use $2 billion from the purchase to increase an already announced share buyback to $4 billion, Braly said.

The insurer advanced $3.24, or 8 percent, to $43.58, at 4 p.m. in New York Stock Exchange composite trading, its biggest one-day increase in a month. Express Scripts rose $7.64, or 16 percent, to $56.81 on the Nasdaq Stock Market, for its biggest single-day gain since Oct. 27, 2005.

Adding Prescriptions

The sale is expected to close by year-end, the companies said in a statement. Express Scripts will add 25 million members, and the number of prescriptions it handles each year will grow to 750 million, the companies said. The largest benefits manager, Medco Health Solutions Inc., of Franklin Lakes, New Jersey, handled 796 million prescriptions last year, the company said in its Feb. 24 earnings statement.

Express Scripts lost a hostile takeover bid two years ago to acquire rival benefits manager Caremark Rx Inc., which was sold to drugstore chain CVS Corp. in a $27.5 billion deal creating CVS Caremark Corp., of Woonsocket, Rhode Island.

“Both parties win here because Express Scripts gets the chance to grow that it missed with Caremark, and WellPoint gets cash from an asset that wasn’t essential to its core business,” said Les Funtleyder, an analyst with Miller Tabak & Co. in New York, in a telephone interview.

Fourth-Biggest Deal

Benefits managers encourage the use of cheaper generic drugs and deliver medications by mail to help private employers, labor unions and governments hold down prescription costs.

The NetRx acquisition would be the fourth-biggest this year in the global health-care industry, according to Bloomberg data. More than 360 deals valued at $180 billion have been announced, led by Pfizer Inc.’s offer for Wyeth for about $64 billion.

Including the value of the share buybacks, the sale will increase WellPoint earnings 5 to 10 percent in the year after completion, Chief Financial Officer Wayne DeVeydt said on the call. About $1.8 billion from the acquisition will pay taxes and other costs associated with the deal, while WellPoint will use $500 million to pay down debt, he said.

WellPoint also will get Express Scripts’ expertise in streamlining costs by ensuring patients are taking the right drugs at the right dosages, said George Paz, the benefits manager’s chief executive officer, in an interview with Bloomberg Television.

‘Well-Aligned’

“WellPoint and Express Scripts are very well aligned in understanding our mission, which is, when you look at health care, taking out the waste,” Paz said.

The recession has prompted pharmacy-benefits clients to seek medical savings, and the trend will probably continue, Paz said in February. Net income growth at Express Scripts has exceeded 20 percent in seven of the past eight quarters.

NetRx will increase the prescriptions Express Scripts handles by about a third and give it a chance to cut costs by switching more to mail-order drugs, said David Shove, a BMO Capital Markets analyst in New York, in a telephone interview.

WellPoint fills about 10 percent of its orders by mail, while Express Scripts’ rate is more than 30 percent, he said.

While the potential savings are hard to estimate, Express Scripts may cut WellPoint’s drug costs by as much as 6 percent, saving up to $450 million a year, said Joshua Raskin, a Barclays Capital Inc. analyst in New York, in a note to clients today.

The sale may prompt other insurers to consider unloading their pharmacy-benefit divisions, including Philadelphia-based Cigna Corp., Health Net Inc. of Woodland Hills, California, or Coventry Health Care Inc. of Bethesda, Maryland, Shove said.

‘Greatest’ Value

WellPoint CEO Braly, asked on the call if another company had bid for NetRx, didn’t answer directly. She said “the value both in the upfront and throughout the term of the contract was the greatest with this partner.”

WellPoint’s net income shrank in every quarter last year from the same period the year before. The insurer missed its forecast for fourth-quarter earnings and gave no detailed estimate on Jan. 28 as bad investments, computer errors and a declining job market sapped income. In January, WellPoint said it would eliminate about 1,500 jobs to cut costs.

WellPoint NextRx, founded in 1993, is the fourth-largest pharmacy-benefit manager in the U.S., according to the insurer.

The main financial adviser to Express Scripts was Citigroup Inc., assisted by Credit Suisse Group AG and JPMorgan Chase & Co. Legal adviser was Skadden, Arps, Slate Meagher & Flom LLP.

Express Scripts agreed to pay WellPoint $50 million if the acquisition is terminated, according to the statement. The price includes the value of a future tax benefit for Express Scripts, according to the statement.

UnitedHealth Group Inc., of Minnetonka, Minnesota, is the largest health insurer.

To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.

Last Updated: April 13, 2009 16:41 EDT