Amil Leads Health Firms Luring Bids on Brazil Growth

UnitedHealth Will Buy Brazilian Insurer Amil for $4.9 Billion
The UnitedHealth Group Inc. headquarters in Minnetonka, Minnesota. Photographer: Dawn Villella/Bloomberg

Amil Participacoes SA’s ability to boost revenue at five times the pace of its biggest U.S. peers is prompting UnitedHealth Group Inc. to make a $4.9 billion takeover bid for Brazil’s largest managed-health provider.

UnitedHealth, the No. 1 U.S. health insurer, said today it agreed to buy 90 percent of Rio de Janeiro-based Amil. It plans to first buy 60 percent of the Brazilian company from controlling shareholders as soon as the fourth quarter, then buy an additional 30 percent in the first half of 2013.

U.S. insurers have been expanding overseas as they brace for more taxes and regulations under the health-care overhaul signed by President Barack Obama in 2010. The market in Brazil, the world’s second-largest emerging economy, is expanding as rising incomes and unemployment near a record low allow more people to leave the public health system, which serves about 75 percent of the population, for the care of private providers.

“The outlook for the health-care industry in Brazil is very positive, as demand for those type of services have a high correlation with income and employment levels,” Rodolfo Amstalden, an analyst at equity consulting firm Empiricus Research, said in a phone interview from Sao Paulo. “Amil has very experienced managers and a strong market position to benefit from this favorable outlook.”

Separately CareFusion Corp., a U.S. medical technology company, said today it agreed to buy Intermed Equipamento Medico Hospitalar Ltda., a respiratory technology company based in Sao Paulo, according to a statement distributed by PRNewswire. The financial terms weren’t disclosed.

Sales Growth

Brazil’s five biggest health-care and insurance providers by market value have increased sales by an average of 29 percent annually in each of the past three years, with Amil posting a 29 percent gain to 9 billion reais last year. That compares with an average expansion of 5.7 percent for the five biggest in the U.S., including UnitedHealth.

Amil’s shares jumped 14 percent to 28.94 reais at 1:48 p.m. in Sao Paulo, extending this year’s advance to 76 percent. The stock trades at 36.8 times estimated earnings for the next four quarters. That compares with a ratio of 13.4 times for the benchmark Bovespa index, which has climbed 4 percent this year. UnitedHealth has gained 13 percent in New York this year.

Diagnosticos da America SA, the Barueri, Sao Paulo-based medical-diagnostics firm known as Dasa, advanced 6.9 percent to 13.89 reais in Sao Paulo, poised for its biggest one-day gain since December 2011. Amil’s Chief Executive Officer Edson Bueno is also Dasa’s controlling shareholder.

Amil’s smaller competitor Tempo Participacoes SA trades at a ratio of 15.8 times analysts’ earnings forecasts, while the ratio for Odontoprev SA, Brazil’s largest provider of dental-care plans, is 30.9.

Jobless Rate

The jobless rate in Brazil fell to a record low of 4.7 percent in December and was 5.3 percent in August, versus 7.5 percent in May 2010, according to the Rio de Janeiro-based national statistics agency. Unemployment has remained close to historic lows as President Dilma Rousseff’s administration reduced interest rates, cut payroll taxes and increased subsidized credit to businesses to spur economic growth.

The jobs created in Brazil have helped boost the health-care industry in the past few years because most employers sponsor health plans for employees, said Thomas Chang, an analyst at UM Investimentos brokerage.

“It’s been a positive thing in the past, but the jobless rate doesn’t have much room to keep falling,” Chang, who rates Amil a hold, said by phone from Sao Paulo. “To keep growing, companies such as Amil will have to start focusing more on selling plans for individuals, which is much harder than selling corporate plans.”

‘Comfortable Place’

Brazil’s relatively strong private-health sector may be more enticing than other countries where governments place more control on the market, said Sheryl Skolnick, a CRT Capital Group analyst who follows UnitedHealth.

“It might be a more comfortable place for an expansion for a company like United, which may want to have less of a government presence and more of a desire to do things in the private sector,” Skolnick said in a telephone interview.

Brazil’s integrated-care model, where insurers also own hospitals and physicians’ practices, is another attraction, said the analyst, who is based in Stamford, Connecticut. Unlike in the U.S., where the two sides are often at odds, a blended system can lead to more coordinated care for patients and better cost controls, she said.

“Ultimately, if you want to squeeze costs out of the system, you have to integrate the system, at least in some areas,” she said.

‘Good Time’

UnitedHealth, like rival insurers, has seen its costs drop in the U.S. as Americans cut back on medical care amid a weak economic recovery. That’s left the companies flush with cash to do expansions, said Paul Keckley, executive director of the Deloitte Center for Health Solutions in Washington.

UnitedHealth had $14.4 billion in cash and short-term investments as of June 30, according to data compiled by Bloomberg.

“You’ve got cash, you’ve got good currencies and you’ve got a stock that’s doing pretty well,” he said in a phone interview. “It’s a pretty good time for these deals.”

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