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Why Universal American Corporation Shares Are Up 10.7% Today

By Todd Campbell - Nov 17, 2016 at 11:41AM

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WellCare Health has announced that it is acquiring Universal American for $10 per share.

Image source: Getty Images.

What happened

After announcing that it's agreed to be acquired by WellCare Health Plans (WCG), shares of Universal American Corporation (NYSE: UAM) are climbing nearly 10.7% at 11 a.m. EST Thursday.

So what

News that WellCare is buying the Medicare insurer marks the latest in what's been a busy year for Universal American.

In August, Universal American sold its Medicaid business to Molina Health and its traditional health insurance business to Nassau Reinsurance, and in September it resolved outstanding litigation by repurchasing shares from defendants in a move that, combined with prior repurchases, reduced its share count by 31%.

These moves positioned Universal American as a concentrated player in Medicare Advantage and Medicare accountable care organizations in Texas, New York, and Maine. Apparently, it also positioned the company as an ideal fit for WellCare Health, a Medicare and Medicaid insurer that has big exposure in southern states, including Florida.

Under the terms of the agreement, Universal American investors will receive $10 in cash per common share.

Now what

WellCare is coming off the heels of a strong third quarter in which its premium revenue grew year over year to $3.6 billion from $3.4 billion and its adjusted EPS improve to $1.63 from $1.04. The company's performance resulted in management increasing their full year EPS outlook to $5.35-$5.45 from prior guidance of between $4.95 to $5.05.

WellCare's management thinks the addition of Universal Americans adds approximately 114,000 Medicare Advantage members, 70% of whom are enrolled in a 4.0 or higher Star Rated Medicare plans, can further accelerate its earnings. In the first full year after this deal closes, WellCare is expecting this deal to add between $0.60 and $0.70 to its bottom line. In the second year, management thinks it will add between $0.70 and $0.80 in profit as it increasingly benefits from anticipated annual synergies of at least $25 million by 2019.

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Stocks Mentioned

WellCare Health Plans, Inc. Stock Quote
WellCare Health Plans, Inc.
Molina Healthcare, Inc. Stock Quote
Molina Healthcare, Inc.
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