A Medicare exchange company — Extend Health Inc. — has agreed to sell itself to Towers Watson & Company (NYSE:TW) rather than go ahead with efforts to sell stock to the public through an initial public offering (IPO).
Towers Watson, New York, will pay about $435 million for Extend Health, San Mateo, Calif., the companies say.
The companies hope to close on the deal within 60 days.
Employers that want to back away from offering traditional, fully employer-paid retiree health plans can use the Extend Health ExtendRetiree exchange to steer retirees toward other options.
Retirees can use the exchange to shop for Medicare Advantage, Medicare supplement and Medicare Part D prescription drug plans from a list of about 75 regional and national carriers.
Rather than having to pay the full cost of the coverage, an employer can provide a set amount of cash, or defined contribution, for each retiree who buys coverage through the exchange.
Extend Health now serves about 300 commercial and public-sector employers with a total of about 200,000 retirees. The company reported $10 million in net income for 2011 on $51 million in revenue and other sources.
Extend Health said earlier this year that had hoped to raise $75 million through an initial public offering (IPO) of common stock. The company said it would use some of the IPO proceeds to repay a loan from Silicon Valley Bank.
Towers Watson says it will make Bryce Williams, the chief executive officer of Extend Health, the leader of a new exchange solutions division with about 300 employees.
Prospects for the division should be promising, because Towers Watson has found that 54% of employers with more than 1,000 employees are thinking about revamping their current retiree health benefits, the company says.