News Anthem is in the running to buy Magellan Health has analysts intrigued with the health insurer’s acquisition strategy and just how much the company is ready to spend.
But Anthem chief executive Gail Boudreaux, her CFO and a new report says there isn’t a reason to worry as the operator of Blue Cross and Blue Shield plans in 14 states prepares to add new services to serve its more than 40 million members. It may just be a question of when and how big of a deal Anthem will announce.
“Anthem has strong debt service and financial flexibility,” Fitch Ratings said in a report earlier this week. “The company maintains a $3.5 billion credit facility, a $2.5 billion (commercial paper) program, and proven access to the debt and equity capital markets under typical market conditions.”
Analysts and recent financial reports say Anthem, the nation’s second-largest health insurer, and UnitedHealth Group, the nation’s largest health insurer, are in a late round of bidders for Magellan, which is known for its behavioral health services though it also has a pharmacy benefit management business and Medicaid health plans.
Anthem lately has been focused on rolling out its new PBM, IngenioRx, that could benefit from additional scale of enrollees from an acquisition. Anthem also has a fast-growing government business that fueled first-quarter earnings growth managing Medicaid benefits for states and coverage for seniors via its Medicare Advantage plans.
Though Anthem executives this week didn’t publicly address any interest in Magellan, at least one analyst, A.J. Rice of Credit Suisse, asked about “potential opportunities in and around Medicaid and in pharmacy benefit (management).” Magellan is in both businesses.
In response, Anthem chief financial officer John Gallina said on Wednesday’s first-quarter earnings call that the company expects to use half of its “free cash flow for either reinvesting in the business or M&A about 30% over the long term on share buyback and 20% for dividends.”
“However, that 50% and 30% could actually shifted at any point in time, based on current market conditions and opportunities that are out there,” Gallina said.
Anthem has already acquired some Medicare Advantage plans in Florida in the last 18 months that included doctor practices and clinics and executives aren’t ruling out more of that. “In terms of M&A opportunities — absolutely we’re very focused on the (Medicare Advantage) tuck-ins that either provide us a footprint or solidify our footprint in the market,” Gallina added.
Date: April 27, 2019