Health Care and Insurance and WellPoint and Health Care & Life Sciences and Health Care & Insurance

WellPoint buying 1-800 Contacts for about $900M

June 4, 2012

Indianapolis-based WellPoint Inc. has agreed to buy eyewear and contact-lens retailer 1-800 Contacts Inc. for about $900 million, The Wall Street Journal reported.

The deal is the latest example of health insurers seeking to diversify into higher-margin businesses while strengthening their ties to consumers.

"We see a unique way of tying 1-800 Contacts into our product design," Wayne DeVeydt, WellPoint's chief financial officer, told the Journal.

WellPoint officials told the newspaper that they might develop health plans and vision coverage that offer special discounted access to contacts and eyewear.

The companies would not confirm the purchase price, but a source told the newspaper it was close to $900 million.

Draper, Utah-based 1-800 Contacts is the largest direct-to-consumer retailer in the contact lens market.  The firm, which is majority owned by New York-based Fenway Partners, sells contacts and eyewear by phone, Internet, mail and fax. CEO Jonathan Coon said its annual revenue is about $400 million.

DeVeydt told Journal that 1-800 Contacts has after-tax margins in the “double-digit range” compared with about 5 percent for WellPoint’s health insurance lines.

Insurers have been seeking diversification opportunities in part because the federal health care law is expected to pinch profits on traditional coverage. Last year, WellPoint rival UnitedHealth Group rolled out plans to sell hearing aids directly to consumers over the Internet.

The health overhaul law is accelerating a shift toward people selecting their own health-care products and health coverage. DeVeydt told Journal that trend “is not slowing down,” regardless of the outcome of the Supreme Court’s review of the law.
 

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