UnitedHealth (UNH) Scoops up Davita (DVA) Unit in $4.9 Billion Deal

UnitedHealth Group Inc. (NYSE:UNH), the largest health insurer in the U.S., continued to expand its presence in the health services sector with the acquisition of DaVita Medical Group, the primary and urgent care services unit of kidney dialysis firm DaVita Inc. (NYSE:DVA), for $4.9 billion.  DaVita Medical Group has a network of nearly 300 clinics spread across six states that serve about 1.7 million patients. The transaction will see it become part of UnitedHealth’s health services unit Optum.  The acquisition follows UnitedHealth’s $2.3 billion takeover of Surgical Care Affiliates Inc. in March. Surgical Care and its affiliates run 205 facilities in over 30 states, including ambulatory surgery hubs.

The deal also demonstrates the continuing trend of cross-sector consolidation in health care. Insurers believe they can save on medical costs by growing their presence in medical services. They say savings can be realized by moving patients to more accessible and cheaper locations.  Just recently, drugstore chain operator CVS Health Corp. (NYSE:CVS) agreed to purchase health insurer Aetna Inc. (NYSE:AET) for $69 billion.  UnitedHealth did not divulge any details on the deal’s financial impact, although Leerink analyst Ana Gupte expects it to add to the firm’s EPS by 1 percent to 4 percent in 2018, and between 5 percent and 7 percent in 2019. Oppenheimer analyst Michael Wiederhorn, meanwhile, said in a research note that the acquisition makes sense, given that UnitedHealth will be better positioned to slash costs by keeping its beneficiaries out of hospitals.

“We continue to favor the methodical approach to building a consumer-oriented, vertically integrated healthcare company piece by piece,” he wrote.

UnitedHealth is up 0.21 percent in after-hours trading at $219.94 per share. Its shares are up by nearly 37 percent this year. DaVita, meanwhile, ended the latest trading session up almost 14 percent at $69.20 per share. It plans to use the proceeds from the sale for substantial stock buybacks in the first two years of deal closing, as well as to cut debt and for general corporate purposes.

Buffett Benefits

Warren Buffett scored a win in the deal as his Berkshire Hathaway group owns a 20 percent interest in DaVita and is its largest shareholder. The one-day paper profit to the investor group amounts to over $231 million. Berkshire included DaVita in its portfolio in 2011, but things haven’t been rosy. The stock has fallen 20 percent since the end of 2014 before jumping as the acquisition was announced. Berkshire has placed bets in health care in the past years with mixed outcomes. It once held a key position in Johnson & Johnson (NYSE:JNJ) but cut it. It also owned shares in UnitedHealth but off-loaded these in 2010 as the health insurance sector was felling the impact of the Affordable Care Act.

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