WellPoint, Inc. (NYSE:WLP), one of the largest health insurers in America is acquiring the eyewear retailer 1-800 Contacts, Inc. for close to $900 million. The seller is private equity firm Fenway Partners Inc, according to a Wall Street Journal report.
Continued from part one... Q1 hedge fund letters, conference, scoops etc Abrams and his team want to understand the fundamental economics of every opportunity because, "It is easy to tell what has been, and it is easy to tell what is today, but the biggest deal for the investor is to . . . SORRY! Read More
The deal is likely to be closed in the third quarter and will be financed with cash on hand. “We see a unique way of tying 1-800 Contacts into our product design,” WellPoint Chief Financial Officer Wayne DeVeydt said. “WellPoint would also get a diversified revenue stream into a higher-margin business,” he further added.
The post-tax margin rates are in double digit range for 1-800 Contacts as compared to 4-5% of WellPoint’s health insurance business. 1-800 sells prescription contact lenses over the phone and online. After the acquisition WellPoint will directly sell vision services to the customers.
Fenway Partners, Inc. had acquired 1-800 Contacts for $340 million in June 2007 and after five years it’s getting $900 million. WellPoint is making a string of investments to form a strong bond with its customers. 1-800 will compliment the vision insurance business of WellPoint which has over 4.2 million customers. The company hopes to capitalize on a shift towards people selecting their own health coverage and healthcare products.
It’s not just WellPoint, Inc. (NYSE:WLP), but many other health insurers are diversifying their businesses to build more direct contact with customers. Cigna Corp. is running new marketing campaigns to improve direct-to-customer business, United Health Group entered the hearing-aid business with plans to sell the devices directly to customers over the Internet, Humana Inc. (NYSE:HUM) has entered into partnership with Wal-Mart Stores to sell a Medicare drug plan.