Mergers & Acquisitions and Insurers and Insurance and WellPoint and Health Care & Life Sciences and Health Care & Insurance

WellPoint to unload 1-800-Contacts unit

January 7, 2014

WellPoint Inc. said Tuesday that it has agreed to sell its online contact-lens site, 1-800-Contacts, to Boston-based private equity firm Thomas H. Lee Partners LP in order to focus on its core health-insurance business.

Financial terms weren’t disclosed. Indianapolis-based WellPoint paid a reported $900 million to buy the company in June 2012.

The transaction will result in a charge of 52 cents to 57 cents a share for the fourth quarter of 2013, WellPoint said in a prepared statement. The insurer also plans to sell Glasses.com, part of the contact-lens retail operation, to Milan-based Luxottica Group SpA.

 “Unlike peers that are moving towards diversification and vertical integration, WellPoint’s new CEO is focusing on streamlining operations and growing in the commercial segment through the health insurance exchanges,” Sarah James, a Wedbush Securities Inc. analyst in Los Angeles, said in a report.

WellPoint’s charge against its earnings for the sale may be as much as $168 million, based on 295.4 million shares outstanding, according to data compiled by Bloomberg.

“We see the transaction as a decisive action by new CEO Joseph Swedish to reverse one of the less-popular moves by his predecessor,” Ana Gupte, an analyst with Leerink Partners in New York, said in a report.

WellPoint, the second-largest for-profit insurer in the U.S., operates Blue Cross and Blue Shield health plans in 14 states, including California and New York. The company is gearing up for potentially millions of new customers under the coverage expansions of the 2010 Patient Protection and Affordable Care Act, known as Obamacare, that began Jan. 1. CEO Joseph Swedish said the sale of the contact-lens site will raise money for WellPoint’s insurance business.

“As we prepare for the coming changes to the health-care system, we are focused on our core growth opportunities across both our commercial and government business segments,” Swedish said in the statement. “Proceeds from this transaction will support our continued capital deployment strategies.”

“The fact they’re selling it 18 months after they bought it for a loss indicated it probably didn’t belong under WellPoint in the first place and it’s probably a good thing they’re disposing of it,” said Les Funtleyder, an industry analyst and author of “Health-Care Investing.”

WellPoint bought 1-800 Contacts from the private equity firm Fenway Partners in June 2012 for about $900 million. The purchase wasn’t popular with investors, and WellPoint’s former CEO, Angela Braly, left the company about three months later. Swedish was appointed CEO in February 2013.

“There would have been more accretive and synergistic ways to deploy close to $1 billion than to buy this business,” said Ana Gupte, an analyst with Leerink Partners in New York.




 

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