UnitedHealth to Buy Brazil Insurer Amil for $4.9 Billion
UnitedHealth Group Inc. (UNH), the biggest U.S. health insurance company, agreed to pay about $4.9 billion to buy 90 percent of Amil Participacoes SA, a Brazil-based insurer and hospital chain that gives the American company a stake in the world’s second-biggest emerging economy.
The deal values Amil at 30.75 reais ($15.13) per share, a 50 percent increase over its price a month ago, said Donald Nathan, a UnitedHealth spokesman, in an e-mail. Amil’s founder, Edson Bueno, will remain as chief executive officer and chairman of the Brazil operation and will join UnitedHealth’s board, the Minnetonka, Minnesota-based insurer said in a statement.
U.S. insurers have been on a buying spree in the past 12 months, snapping up smaller rivals as they prepare for tighter profit margins under President Barack Obama’s health-care overhaul. In Brazil, private insurance membership has surged 14 percent over three years, even as U.S. enrollments dwindled.
“I like the deal, the structure, and the opportunity,” said Sheryl Skolnick, a health-care analyst at CRT Capital Group LLC in Stamford, Connecticut, said in an e-mail. “Amil’s current leadership not only remains in place but adds diversification to United’s board. It’s a well-thought-out transaction, in my view, and an exciting one.”
UnitedHealth rose less than 1 percent to $57.60 at the close of New York trading, and has gained 28 percent in the past 12 months. Amil, based in Rio de Janeiro, climbed 15 percent at the close of trading in Sao Paulo to a record 29.16 reais. The shares have climbed 70 percent in the past 12 months.
Amil is Brazil’s biggest managed-care company, covering 5.9 million people last year with medical and dental plans. It owns about 20 acute-care and specialty hospitals and 50 clinics, part of a network of 3,300 hospitals and 55,000 clinics with which it contracts, according to its website. The carrier had 9.01 billion reais ($4.4 billion) in revenue in 2011, according to data compiled by Bloomberg.
Brazil’s growing middle class and expanding private health-care market make Amil “the most compelling growth and value creation opportunity we have seen in years,” UnitedHealth’s chief executive officer, Stephen Hemsley, said in the statement.
UnitedHealth will buy Amil in a two-step process over the next year, with Brazilian tax benefits reducing the effective cost of the acquisition by about $600 million.
In the fourth quarter, following Brazilian regulatory approval, UnitedHealth will buy about 60 percent of Amil’s outstanding shares from controlling shareholders and management. In the first half of next year it will make a public offer for the remaining 30 percent, according to the release.
Amil’s Bueno, has agreed to invest about $470 million in UnitedHealth stock and hold the shares for five years, according to the statement. He and partner Dulce Pugliese will retain the remaining 10 percent of Amil for the same period, the companies said.
The acquisition will add “slightly” to 2013 profits, UnitedHealth said in the statement. The company also said it had earnings of at least $1.45 for 2012’s third quarter. That would beat the average estimate of $1.24 per share from 13 analysts tracked by Bloomberg.
“This investment is really around growth, the pursuit of a dramatic new market,” Hemsley said on a conference call with analysts today. “We will be arguably the market leader in the United States and Brazil and Latin America.”
UnitedHealth has stayed on the sidelines as rivals announced major deals this year to tap the market for government-backed insurance in the U.S. In July, Indianapolis-based WellPoint Inc. (WLP) paid $4.9 billion for Amerigroup Corp., the biggest specialist in Medicaid plans for the poor. A month later, Aetna Inc. (AET), based in Hartford, Connecticut, said it will spend $5.6 billion for Coventry Health Care Inc., which offers Medicare coverage for the elderly and disabled.
UnitedHealth already leads in both categories and may have decided its best deals would be found overseas, said Skolnick. The company was already expanding its international business, announcing partnerships this year to cover expatriate workers in Australia and the Middle East.
“Of all the health-plan companies, they are probably the only one that has the capability and the depth of management and expertise to pull off” a big international expansion, Skolnick said by telephone.
Still, the company may have to persuade investors it can integrate a purchase as big as Amil, add dozens of hospitals to its portfolio, and make it all work in a foreign health-care system, Skolnick said.
While three-quarters of Brazilians still get care through Brazil’s public health system, the number seeking out private providers has grown as the economy has improved. The country’s jobless rate was 5.3 percent in August, versus 7.5 percent in May 2010, according to the national statistics agency.
Amil’s enrollment has grown 4.5 percent since 2009, compared with a 14 percent rise for the Brazilian market as a whole, according to an Aug. 31 research note from Guilherme Assis, a Raymond James analyst in Sao Paulo.
UnitedHealth earned three-quarters of its revenue from managing benefits last year.
“The acquisition is yet another way UnitedHealth chooses to diversify its revenue, which is part of what makes it one of our favorite names,” said Dave Shove, a BMO Capital Markets analyst in New York.
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