In order to expand its presence in the U.S. government program for the elderly, WellPoint Inc. (WLP) has agreed to purchase its privately held Medicare specialist CareMore Health Group for $800 million. Other financial details remain undisclosed.
Based in California, CareMore is a senior-focused health care delivery program that includes Medicare Advantage plans and clinics designed to deliver proactive, integrated, individualized health care in select California, Arizona and Nevada markets.
WellPoint notified that the acquisition is expected to close by the end of the year 2011 and is subject to certain state regulatory approvals and standard closing conditions and customary approvals required under the Hart-Scott-Rodino Antitrust Improvements Act. However, it is expected that the deal will not impact the profits of 2012, but will add to earnings in 2013 and beyond.
Moreover, following the acquisition, more than 1 million Baby Boomers will become eligible for the program every year through 2030 across the 14 states in which its Blue Cross and Blue Shield plans have a presence, according to WellPoint.
With the acquisition of CareMore, WellPoint will be able to expand CareMore model both within existing CareMore markets and to WellPoint markets across the country. CareMore’s mission is to improve the overall lives and well-being of seniors by providing innovative, focused health care approaches to the complex problems of aging, while protecting precious financial resources of seniors and the Medicare Program.
In addition, it will serve the mission of WellPoint to improve the lives of the people by creating better health outcomes for the senior population through preventive care and screenings, and intensive care management of the frail and chronically ill.
CareMore is owned by the New York equity firm CCMP Capital Advisors and has 1,200 employees at its offices, along with 26 health clinics, whereas WellPoint does not have health clinics in its 14 state service area, although the company employs 3,000 doctors, nurses and other clinicians.
WellPoint is well positioned and the nation’s largest health insurer by enrollment among its peer group like Humana Inc. (HUM) and Unitedhealth Group Inc. (UNH) and has been strengthening its portfolio through its acquisition strategy, the synergies of which are expected to lead to margin expansion and top-line growth.
Moreover, the sale of its in-house pharmacy benefits business to Express Scripts (ESRX) in the fourth quarter of 2009 has strengthened its balance sheet and fueled buybacks.
Though we are pleased with the strong results of WellPoint along with solid capital management, we remain wary of the impact of the health insurance reforms and expect these reforms to likely overshadow the stock.
Currently, WellPoint carries a Zacks #2 Rank, which translates into a short-term Buy recommendation, indicating upward directional pressure on the stock over the near term.
