U.S. Health Industry’s Deal Engines Hums Despite Pandemic

Some of the biggest companies in health care in the U.S. are pressing ahead with significant deals at the start of the new year, even as the coronavirus pandemic hangs over the industry’s immediate future.

Insurer UnitedHealth Group Inc. unveiled one of its biggest-ever acquisitions on Wednesday, saying it planned to take over health-technology company Change Healthcare Inc. for $8 billion. Also Wednesday, AmerisourceBergen Corp. said it had agreed to buy Walgreens Boots Alliance Inc.’s Alliance Healthcare pharmaceutical wholesale businesses for about $6.5 billion in cash and stock.

Taken together, the transactions are a sign that large health-care companies are thinking beyond the coronavirus, refining strategies developed before the pandemic while positioning themselves to profit from a world reshaped by it.

More deals could unfold in coming weeks as the industry prepares to gather for the JPMorgan Healthcare Conference -- usually a glitzy annual confab in San Francisco that this year will be held virtually as Covid-19 infections continue to soar and vaccines roll out worldwide.

In buying Change Healthcare, UnitedHealth will add additional muscle to its vast Optum health-services business. Meanwhile, U.S.-based AmerisourceBergen will gain one of the largest pharmaceutical wholesalers in Europe, while Walgreens will become even more focused on drugstores at a time when rivals have tried to diversify beyond retail pharmacies.

Investors mostly cheered the deals even as signs that Democrats are poised to take control of the U.S. Senate weighed on the wider market. AmerisourceBergen shares jumped 7.5% as of 9:48 a.m. in New York, while Change Healthcare soared 32% and Walgreens rose 2.5%. UnitedHealth shares were up less than 1%.

U.S. Health Industry’s Deal Engines Hums Despite Pandemic

Beyond Insurance

UnitedHealth has broadened its reach well beyond the health insurance business it is perhaps best known for. Through its Optum division, the company increasingly delivers medical care directly to patients and sells consulting, technology and data to other health-care entities.

UnitedHealth will pay $25.75 per share in cash, a 41% premium over Change Healthcare’s Tuesday close of $18.24. Including more than $5 billion in debt owed by Change Healthcare, the deal amounts to $13 billion.

The proposed deal will combine Change Healthcare with UnitedHealth’s OptumInsight unit to offer software, data analytics, technology and other services to the health-care industry. Change Healthcare’s chief executive officer, Neil de Crescenzo, will lead the combined business unit, the companies said. Nashville, Tennessee-based Change Healthcare has about 15,000 employees, according to data compiled by Bloomberg.

OptumInsight is the smallest unit in the Optum family by revenue, bringing in about $2.8 billion in the three months ending Sept. 30, according to filings, or about 4% of the company’s total. However, it has the highest operating margins of the company’s reported segments, exceeding 20% in each of the last three full years.

Close Ties

For Walgreens, shedding the Alliance units will hone its focus on the pharmacy business. While rival CVS Health Corp. has added health-insurance plans, pharmacy-benefit management and other health services, Walgreens has been looking to shore up its stores, betting that they will remain fixtures for consumers even as online threats encroach on both its retail and pharmacy operations.

At the same time, gaining control of the Alliance units will help AmerisourceBergen expand its global reach. The terms of the deal include $6.275 billion in cash and 2 million shares of AmerisourceBergen’s common stock, the companies said in a statement. In addition, the firms extended existing distribution agreements in the U.S. and the U.K. by several years.

Walgreens and AmerisourceBergen have longstanding close ties -- the drugstore giant is AmerisourceBergen’s biggest shareholder, with a stake of 30% -- and the companies have been talking for years about the potential transaction. AmerisourceBergen has a strong financial position to make it happen, Chief Executive Officer Steven Collis said on a conference call.

“We are pursuing this transaction from a position of strength,” said Collis. “This is something that has been contemplated for a very long time,”

AmerisourceBergen is among drug distributors sued by states and local governments claiming the companies fueled the U.S. opioid epidemic by flooding communities with the highly addictive painkillers. In November, the company said it would set aside a $6.6 billion charge to cover the costs of a settlement proposal.

In a separate statement Wednesday, AmerisourceBergen boosted its earnings forecast for the fiscal 20121 year that ends in September. The Chesterbrook, Pennsylvania-based company expects earnings per share of $8.25 to $8.50, excluding some items, up 5 cents from its previous range.

Walgreens is expected to report its latest quarterly results on Thursday. Its Alliance Healthcare businesses had combined revenue of about $19 billion in 2020, and adjusted earnings before interest, tax, depreciation and amortization of $540 million.

©2021 Bloomberg L.P.

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