While New York Attorney General Eliot Spitzer has health insurers Aetna
UnitedHealth announced today that it is spending $300 million in cash to acquire privately held Definity Health Corp., the national market leader in consumer-driven health benefit programs. Definity, whose customers include BellSouth
One year ago, Congress authorized Health Savings Accounts as part of the Medicare Reform Act. These accounts meshed nicely with Definity's programs and Congress' goal to reduce health-care costs by getting consumers more involved with their decisions.
Definity is growing rapidly; it expects sales of $100 million in 2005. One reason for the rapid growth, ignoring the truly innovative nature of the company's products, is the 5% increase the company charged renewing employers in 2004 -- compared with the 13% projected industry increase. Those are certainly numbers that will get attention.
The acquisition price, at three times projected 2005 sales, is certainly rich -- although adding profitable Definity will add to UnitedHealth's earnings. Having generated $3.4 billion in free cash flow over the last year, UnitedHeath can certainly afford to acquire such a premier company. Instead of directing free cash toward repurchasing shares, the company has found an excellent way to get healthier through an acquisition.
For related Foolish analysis, see:
Hey! Looking for what to do with all that leftover turkey? Visit the Recipes and Cooking discussion board after stopping by to discuss UnitedHealth Group with other investors. The Motley Fool is investors talking to investors.
Fool contributor W.D. Crotty owns stock in Wells Fargo.