UnitedHealth Pays up for Brazil Entry

UnitedHealth Group has agreed to pay $4.9bn to buy 90% of Brazil’s Amil Participacoes, the companies say, in a transaction seen as coming at a significant premium. The agreement gives the largest US healthcare operator an entrance into an underpenetrated Brazilian market and control of the country’s largest healthcare organization. The deal for 359m shares comes at BRL30.75 ($15.15) per share, representing a 21.5% premium to Friday’s BRL25.30 close. “This is a high price. We think UnitedHealth must see a large upside,” says a Sao Paulo equity analyst. He sees the transaction coming at 32.4x 2012 price/earnings and 26.4x 2013 p/e, compared to the respective 26.5x and 20.7x levels at Friday’s closing price. The US operator is paying up for an association with founder and CEO Edson Bueno – who keeps a stake and joins United’s board – and his track record in Brazil, as well as for access to a more vertically integrated model than it has in the US, the analyst notes. Both could be useful for future EM expansion as well as making improvements in United’s home market. Raymond James sees the deal at 38.2x 2013 p/e, it says in a report, yielding a 76% premium to Amil’s historical averages. “The valuation is rich for this kind of business, but the growth potential is much better than the US-based options,” Matthew Cofina, an analyst at Morningstar, tells LatinFinance. He notes it could boost United’s margins going forward, and that Brazil is an attractive base for possible additional acquisitions. UnitedHealth will buy Amil in a two-step process, with Brazilian tax benefits reducing the effective cost of the acquisition by $600m to $4.3bn. Following Brazilian regulatory approval expected in 4Q, UnitedHealth will buy 60% percent of Amil’s outstanding shares from controllers. In 1H 2013, it will make a public offer for the remaining 30% percent. Bueno has also agreed to invest about $470m in UnitedHealth stock and hold the shares for five years, with Bueno and partner Dulce Pug