$4.7B WellPoint deal leaves workers in limbo

Back to TopCommentsE-mailPrintBookmark and Share

Investors cheered this morning after WellPoint Inc. agreed to sell its pharmacy management unit to Express Scripts Inc., but the fate of about 2,100 WellPoint employees now is up in the air.

Shares of Indianapolis-based WellPoint rose more than 5 percent in morning trading. St. Louis-based Express Scripts' stock price shot up 9 percent.

What's not clear in the $4.7 billion deal is what happens to the WellPoint employees involved. The pharmacy unit, called NextRx, employs more than 400 at Indianapolis International Airport. WellPoint had plans to grow employment at the facility to as many as 900.

Express Scripts CEO George Paz said the company expects to achieve an unspecified amount of savings from the deal, but he said his company wouldn't rush to close facilities.

"Like every acquisition that we do, we don't just blindly go in and start shutting down the other side," Paz said, according to a transcript of a conference call with analysts.

"We are very diligent in our process of analyzing best practices, best approaches, the best people, the best facilities. ... We have a sizable footprint around the country because we decided not to shut down facilities of some of the acquired companies."

Express Scripts will pay $4.7 billion in cash and stock for NextRx. WellPoint plans to spend $2 billion in proceeds from the sale buying back shares of its own stock.

WellPoint will use $1.8 billion to pay taxes and transaction costs, $500 million to pay down debt and $375 million for general corporate uses, including future acquisitions.

WellPoint, the nation's second-largest health insurer, covers 35 million individuals. WellPoint's pharmacy subsidiaries, called NextRx, dispense and manage 265 million prescriptions each year for 25 million people.

As part of the sale, Express Scripts has agreed to a 10-year contract to provide services to WellPoint. Express Scripts expects that contract and NextRx's other business to bring it an extra $1 billion in earnings, before interest, taxes, depreciation and amortization.

"Importantly, through this strategic alliance with Express Scripts, we will enhance the health care value we bring to our members," said WellPoint CEO Angela Braly. "This alliance will create an organization with greater resources and capabilities, which will provide members with more cost-effective solutions as well as access to state-of-the-art [pharmacy management] services."

WellPoint will retain control of medical policy, formulary and integrated disease management aspects of its pharmacy benefits. A minority of NextRx employees in Indianapolis will stay on to perform those functions and manage the contract with Express Scripts, said WellPoint spokeswoman Cheryl Leamon.

The deal is expected to close in the second half of 2009. Express Scripts will pay WellPoint $3.275 billion in cash and $1.4 billion in stock. The deal also includes compensation for the value of a future tax benefit for Express Scripts based on the structure of the deal.

The deal gives St. Louis-based Express Scripts, the third-largest pharmacy benefits manager with about 506 million prescriptions filled in 2008, an additional 265 million. That would pull it close to the No. 1 stand-alone company, Medco Health Solutions Inc.

CVS Caremark, which also operates retail stores and pharmacies, managed about 633 million prescriptions in 2008, and would fall to the No. 3 spot after the deal closes.

The cash part of the deal includes a mixture of cash on hand and debt financing.

"Our aligned business model, combined with the complementary expertise and capabilities of WellPoint, creates significant opportunities for accelerated growth for both organizations," Express Scripts Chairman and CEO George Paz said in a statement.

WellPoint is coming off of a rough 2008. The company and its peers have been hurt by investment losses and rising unemployment due to the recession. Higher medical costs have also been eating away at profit.

In 2008, WellPoint's enrollment rose less than 1 percent while profit fell more than 25 percent. The company has warned that rising unemployment and falling enrollment will hurt revenue in 2009.

In February, the company said medical enrollment could fall 3 percent, or by about 1 million members, to 34 million people, while fully insured enrollment would drop by an estimated 6 percent, to 15.5 million.

Express Scripts has been benefiting from the use of generic drugs, which are more profitable for the company than brand-name drugs. During the fourth quarter of 2008, generic drug use rose to 67.3 percent from 63.7 percent for the company. In 2008, profit rose nearly 37 percent.

Pharmacy benefits managers, who manage prescription drug coverage, have generally done well in the recession as more people switch to generics or look to save money by getting 90-day prescriptions filled by mail.

Its key competitor, Medco, also gained ground in 2008, with profit rising 21 percent. Medco had nearly double the revenue of Express Scripts in 2008. But, NextRx, which is the fourth-largest prescription benefits manager in the nation, will give Express Scripts another $1 billion in annual gross earnings, the company said.


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. I am so impressed that the smoking ban FAILED in Kokomo! I might just move to your Awesome city!

  2. way to much breweries being built in indianapolis. its going to be saturated market, if not already. when is enough, enough??

  3. This house is a reminder of Hamilton County history. Its position near the interstate is significant to remember what Hamilton County was before the SUPERBROKERs, Navients, commercial parks, sprawling vinyl villages, and acres of concrete retail showed up. What's truly Wasteful is not reusing a structure that could still be useful. History isn't confined to parks and books.

  4. To compare Connor Prairie or the Zoo to a random old house is a big ridiculous. If it were any where near the level of significance there wouldn't be a major funding gap. Put a big billboard on I-69 funded by the tourism board for people to come visit this old house, and I doubt there would be any takers, since other than age there is no significance whatsoever. Clearly the tax payers of Fishers don't have a significant interest in this project, so PLEASE DON'T USE OUR VALUABLE MONEY. Government money is finite and needs to be utilized for the most efficient and productive purposes. This is far from that.

  5. I only tried it 2x and didn't think much of it both times. With the new apts plus a couple other of new developments on Guilford, I am surprised it didn't get more business. Plus you have a couple of subdivisions across the street from it. I hope Upland can keep it going. Good beer and food plus a neat environment and outdoor seating.