In an effort to expand its international business, U.S. health
UnitedHealth Group Inc.
) has announced to buy Amil Participações S.A of Brazil.
UnitedHealth is expected to shell out approximately $4.9 billion in
cash for 90% stake in Amil.
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 hospital and approximately 50 clinics.
Its care network includes 44,000 doctors, 3,300 hospitals, nearly
11,000 outpatient clinics and 12,000 ancillary service facilities.
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.
The company will conclude the purchase of Brazilian company's in
two phases buying nearly 60% of the outstanding shares from its
controlling shareholders by the fourth quarter, subject to
receiving of approval from Brazilian regulators and approximately
30% of the shares from public shareholders by the first half of
Upon the closure of the buyout, Amil's founder, Dr. Edson Bueno,
will remain the 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 shares for
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 that 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 supports people to spend more on better quality health care
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
United Health has carefully cherry picked Amil keeping in mind
the robust sales growth posted by the latter. Amil has posted
a strong revenue growth of 17.9% year over year for first half of
2012. Total membership has also increased by 4.9% year over year
over the same time period.
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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 have produced sound growth
across the insurance industry in Brazil.
UnitedHealth's peers looking to expand internationally include
UnitedHealth is expected to release third quarter earnings on
October 16, and expects to report earnings of $1.45 per share
compared with the Zacks Consensus Estimate of $1.25 per share. The
company also expects medical enrollment growth of more than 650,000
people in the quarter.
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 the shares.