After receiving approval from ANS - the Brazilian Healthcare
Regulatory Agency - and purchasing approximately 60% of
Brazil-based Amil Participações S.A.'s outstanding shares
from controlling shareholders and management,
UnitedHealth Group Inc.
) completed first lap of the latter's buyout.
UnitedHealth had announced the purchase of Amil earlier in
October this year.
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UnitedHealth expects to complete the second part of the
transaction, which involves buying approximately 30% of the
Amil's shares from public shareholders, by the first half of
The acquisition is a strategic step by the company to expand its
international business. The purchase will cost approximately $4.9
billion in cash.
Amil Participações S.A. is the biggest Latin America healthcare
company of Brazil, serving more than 5 million people via its
vast delivery network of 22 hospitals and approximately 50
clinics. Its care network includes 44,000 doctors, 3,300
hospitals, nearly 11,000 outpatient clinics and 12,000 ancillary
Although the acquisition will slightly be accretive to
UnitedHealth's 2013 earnings, it will increase the company's
financial leverage ratio to around 36%. However, this ratio will
eventually trend downwards.
Upon the closure of the buyout, Amil's founder, Dr. Edson Bueno,
will remain its chairman and CEO. He will also take place in
UnitedHealth Group's Board of Directors.
In addition to this, the veterans in Amil's leadership team will
retain their positions. Further, Amil's CEO will invest nearly
$470 million in shares of UnitedHealth Group and will hold the
shares for five years.
This big acquisition marks a strategic move by UnitedHealth,
indicating aggressive international expansion at a time when
growth in the domestic markets is facing pressures from the new
UnitedHealth is particularly attracted towards the Brazilin
insurance industry and has been experiencing healthy growth as a
result of improving economic conditions and the loosening of
market regulations in the country. The region is expected to
create a huge demand for private insurance as a low unemployment
and rising income compel people to spend more on better quality
healthcare needs offered by private insurance
companies. As of March 2012, only 25.1% of the
Brazilian population was enrolled in private healthcare plans or
had private health insurance. The remainder of the population
relied on public healthcare services.
United Health has cherry-picked Amil keeping in mind the robust
sales growth posted by the latter. Amil has posted strong
revenue, which grew 17.9% year over year in first half of 2012.
Total membership also increased by 4.9% year over year over the
same time period.
We expect to see more health insurers showing their interest in
the Brazilian insurance market, since it is the largest in South
America, and offers the potential to become a more prominent
international insurance market. Recent economic stability,
positive credit trends, and regulatory reforms that have
stabilized the currency and promoted domestic savings, produced
sound growth across the insurance industry in Brazil.
UnitedHealth's peers that are looking to expand internationally
UnitedHealth currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. We are also maintaining our
long-term 'Neutral' recommendation on its shares.