November 17, 2016 / 12:51 PM / 2 years ago

Insurer WellCare Health to buy Universal American for $600 million

(Reuters) - Insurer WellCare Health Plans Inc (WCG.N) said on Thursday it would buy smaller rival Universal American Corp UAM.N for about $600 million to bolster its Medicare Advantage business, which offers insurance to elderly and disabled Americans.

The deal comes at a time when analysts are expecting a bright future ahead for Medicare Advantage (MA), which provides healthcare benefits to more than one-third of people in the United States, under President-elect Donald Trump’s administration.

Trump has said he wants to modernize Medicare, but has not provided any details.

Credit Suisse analysts said that as a result of the acquisition, WellCare’s earnings mix will further pivot toward MA compared to Medicaid and could enhance investor perception of the company as a potential takeover candidate.

Shares of health insurers and hospitals slumped last week as investors were concerned that Trump and the Republican leadership in Congress would repeal and replace Democratic President Barack Obama’s landmark healthcare law, Obamacare, which was enacted in 2010.

Stocks have partially recouped some of their losses as Trump has indicated that he would keep some parts of Obamacare.

Analysts have said that health insurers seem best positioned to manage through the period of uncertainty about the outlook for the healthcare system.

WellCare, which focuses on government-backed health plans, will pay $10 per Universal American share in cash, representing a 12.5 percent premium to the stock’s Wednesday close.

The deal is expected to add about 65,000 MA members in a 4.5-Star plan in Houston-Beaumont, Texas, and about 14,000 in a 4.0-Star plan in the Northeast, primarily in New York, to WellCare’s Medicare Health Plans membership.

Universal American shares were up 12.26 percent at $9.98 in morning trading while WellCare’s stock was up 1.73 percent.

WellCare said it would assume about $200 million in Universal American’s preferred shares and convertible debt.

The deal, which was approved by the board of directors of both companies, is expected to be funded through available cash on hand.

The deal, expected to close in the second quarter of 2017, will add 60-70 cents per share to WellCare’s adjusted earnings in the first year after closing.

BofA Merrill Lynch is WellCare’s financial adviser while Kirkland & Ellis LLP and Bass, Berry & Sims Plc are its legal advisers.

MTS Health Partners LP is Universal American’s financial adviser and Paul, Weiss, Rifkind, Wharton & Garrison LLP provided legal advice.

Reporting by Natalie Grover and Ankur Banerjee in Bengaluru; Editing by Martina D'Couto

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