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.
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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.