Back to top

Analyst Blog

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. (UNH - Analyst Report) completed first lap of the latter’s  buyout.  UnitedHealth had announced the purchase of Amil earlier in October this year.

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 2013.

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 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.
 
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 regulations.

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 include Aetna Inc. (AET - Analyst Report), CIGNA Corp. (CI - Analyst Report).

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.  
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 27.00 +10.25%
CANADIAN SO… CSIQ 38.34 +8.18%
BANCO DO BR… BDORY 16.78 +8.05%
CENTURY ALU… CENX 26.97 +7.97%
WILLDAN GRO… WLDN 11.38 +5.86%