NU Online News Service, April 5, 2004, 2:00 p.m. EST – Reported talks for WellChoice, Inc. to acquire Oxford Health Plans would realize “substantial” synergies and move the industry further along toward oligopoly, a leading industry analyst says.[@@]
The Wall Street Journal today reported that WellChoice, New York, and Oxford, Trumbull, Conn., are in acquisition talks.
WellChoice and Oxford spokespersons declined to comment.
At midday on April 5, WellChoice’s stock price was $37.73, up from the opening price of $36.30. Oxford’s stock price was $56.59, up from an opening of $54.95.
UBS analyst William McKeever wrote in a morning call report that a combination would make sense due to economies of scale and because Oxford has “a strong presence in the small group market, which would complement WC exposure to the large group [market].” And, he wrote, WellChoice has the wherewithal to make an acquisition. The company generates $300 million annually in free cash flow and has $2 billion in cash on the balance sheet, McKeever observes.
If the companies do combine, the surviving company “can take out 3% to 4% of the administrative costs of the combined company,” he writes. The savings would be on combined sales, general and administrative expenses of $1.5 billion.
The transaction “could be accretive by 5% to 6% for WellChoice in the first full year of the transaction, assuming the 25% premium discussed in the WSJ article,” he adds.
In its 2003 10K filing, WellChoice said that its strategy is to be “the leading health insurer in the New York marketplace and surrounding areas.”
A total of 1.1 million of Oxford’s 1.6 million members reside in New York.