NEW YORK (Reuters) - WellPoint Inc , the largest U.S. health insurer by membership, has put its pharmacy benefits management (PBM) business up for auction, the Financial Times reported on Thursday.
A sale of WellPoint's PBM business, the fourth-largest in the United States, could be worth anywhere from less than $1 billion to five times that amount, depending on the extent to which WellPoint and other insurers were willing to sign long-term customer contracts with any potential buyer, one person close to the process told the paper.
WellPoint said it does not comment on specific mergers and acquisitions opportunities or rumors. WellPoint shares rose 7 cents to $32.90 in premarket trading.
Its PBM business is likely to attract interest from CVS Caremark Corp
Health insurers endured a tough 2008, marked by profit warnings and questions about their financial positions in the shaky economy, and their shares have been battered in recent weeks on worries about potential health reform measures.
The possibility of health insurers divesting their "captive" drug-benefit units has long been fodder for Wall Street speculation and analysts have previously said the companies may be pressured to spin off their units if their shares continued to languish.
Meanwhile, independent PBMs such as Medco and Express Scripts are valued much more highly by the market. JP Morgan analyst John Rex said shares of independent PBMs trade at about 14 times 2009 earnings estimates, while shares of WellPoint trade at 5.9 times, in line with the managed care group.
"We believe it's simply a multiple arbitrage," Rex said in a research note.
Rex said he expected at least some of WellPoint's proceeds from such a deal would go to more share repurchases.
Indianapolis-based WellPoint operates Blue Cross and Blue Shield plans in 14 states.
(Reporting by Lewis Krauskopf in New York and Ajay Kamalakaran in Bangalore; Editing by Dan Lalor, Dave Zimmerman)
