UnitedHealth to buy most of Brazil's Amil for $4.9 billion
NEW YORK (Reuters) - UnitedHealth Group Inc will buy a 90 percent stake in Amil Participacoes SA, Brazil's largest health insurer and hospital operator, for $4.9 billion, tapping into a fast-growing private healthcare market as challenges mount for its U.S. business.
The Brazilian market has been bolstered by a growing middle class and is turning to managed care to meet demand. It is expected to grow twice as fast the U.S. market, UnitedHealth Chief Executive Stephen Hemsley said during a conference call on Monday.
"It looks to us like the potential the U.S. market had 20 or more years ago," Hemsley said.
The deal price - 30.75 reais per Amil share - represents a premium of 22 percent. Amil shares were up 14 percent at 28.85 reais on the Sao Paulo stock exchange. UnitedHealth shares gained 0.7 percent to $57.52 on the New York Stock Exchange.
In the past year, U.S. health insurers have announced a series of multibillion-dollar takeovers in their home market, including Aetna Inc's $5.6 billion buy of rival Coventry Health Care Inc and WellPoint Inc's planned $4.5 billion purchase of Amerigroup Corp.
Those deals aim to capitalize on expected growth in the U.S. government's Medicaid and Medicare programs for the poor and the elderly. But insurers are also under pressure in the nearer term as those programs cut reimbursement rates and competition grows among health plans serving employers.
Taking a controlling stake in Amil will add to a growing international business at UnitedHealth, the largest U.S. health insurer. The company has begun operations or struck alliances in Australia, the Middle East and the UK during the past two years.
A DIFFERENT MODEL OF SERVICE
The deal also gives UnitedHealth a chance to test a different model of medical service: Amil offers insurance coverage and also runs hospitals and doctor facilities. While some examples of this already exist in the United States, the largest U.S. insurance companies for the most part operate separately from networks of doctors and other healthcare providers.
"It's not something UnitedHealth has been willing to do here, but it gives them an opportunity to see how it works," said CRT Capital Group analyst Sheryl Skolnick. "Brazil is a growing economy and gives UnitedHealth more diversification."
Brazil's healthcare system consists of public and private plans, similar to the U.S. model. The number of Brazilians covered under private plans has grown more than 50 percent over the past 10 years to nearly 48 million people, roughly a quarter of the country's population.
Brazil's health insurance regulator, ANS, has expressed concern that this robust growth has not been accompanied by adequate investment. Last week, ANS blocked 38 providers from selling coverage for the next three months due to excessive wait times for exams and surgery.
Foreign investors have also become cautious due to government intervention in Brazil's private sector, including in telecommunications, utilities and healthcare.
UnitedHealth said the Amil deal is subject to regulatory approval and that it will work with regulators, including ANS.
Amil has more than 5 million clients in Brazil and owns 22 hospitals and 50 clinics. It forecast revenues of $5 billion for 2012, up 15 percent from 2011. UnitedHealth had revenues of nearly $102 billion in 2011 and expects the deal to slightly increase its 2013 earnings per share.
Amil founder and Chief Executive Edson Bueno and partner Dulce Pugliese will retain the remaining 10 percent stake in the company for at least five years. Their current stake is 70 percent.
Bueno will also buy $470 million worth of UnitedHealth shares, making him the single largest investor in the company.
The deal includes Brazilian tax benefits worth about $600 million, bringing the effective equity purchase price to about $4.3 billion, the companies said.
UnitedHealth also said it expects third-quarter net earnings of at least $1.45 per share. Analysts on average were expecting $1.25, according to Thomson Reuters I/B/E/S.
(Additional reporting by Esha Dey in Bangalore, Debra Sherman in Chicago and Brad Haynes in Sao Paulo; Editing by Michele Gershberg and John Wallace)