UnitedHealth to buy most of Brazil's Amil for $4.9 billion

By Caroline Humer | Oct 09, 2012 12:20 AM EDT

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The Brazilian healthcare 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 as 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 purchase marks UnitedHealth's first foray to become a hospital owner and is one of the largest overseas acquisitions by a U.S. managed care company yet. For the moment, UnitedHealth is likely to stand alone overseas as competitors catch up at home, analysts said.

"United is by far the largest and most diversified player in the U.S., and so from a strategy point of view they are closer to this point than others," said David Windley, an analyst for Jefferies & Co.

Rival U.S. health insurers are busy managing their own recent deals, so are unlikely to try to expand, he said. In the past few years, the industry has seen a series of multibillion-dollar takeovers in its 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.

UnitedHealth said it would buy a 90 percent stake in Amil. 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 0.9 percent to $57.65 on the New York Stock Exchange.

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.

A DIFFERENT MODEL OF SERVICE

Taking a controlling stake in Amil will add to a growing international business at UnitedHealth. The company has launched operations or struck alliances in Australia, the Middle East and the UK during the past two years.

Competitors also have some overseas business. Insurance provider Cigna Corp, for instance, bought a Belgian medical insurance and benefits company called Vanbreda International in 2010 and expanded in Turkey in 2011.

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 insurers 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'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 301 plans for the next three months due to wait times for exams and surgery. An ANS statement said that included 14 plans offered by providers ASL and Excelsior, which Amil bought in 2010 to expand into Brazil's fast-growing northeast region.

Foreign investors have also become cautious due to government intervention in Brazil's private sector, including in telecommunications, utilities and healthcare.

The deal is subject to regulatory approval by 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.

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.

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