Morningstar | DMG Sale Receives FTC Approval With Conditions; DaVita and United Undervalued
After market close on June 19, the Federal Trade Commission released the details of its complaint and the agreed-to settlement between DaVita and UnitedHealth Group satisfying antitrust concerns stemming from United's purchase of DaVita Medical Group. This announcement brings the roughly year-and-a-half transaction process to a close, with DaVita receiving a reported sale price of $4.34 billion for the assets. We anticipate this cash infusion will go toward debt reduction and share repurchases over the near term—actions we applaud given the steep discount versus our $79 per share fair value estimate. We don't intend to alter our valuation or narrow- and wide-moat ratings for either DaVita or United, respectively, as a result of the deal's completion.The FTC's objection was based on concentrated market power in Nevada, where United has a particularly strong insurance presence. Specifically, United's purchase of DMG's Las Vegas-area medical practices would have put OptumCare in a position to cover roughly 80% of Medicare Advantage members in the region and create incentives for anticompetitive actions when contracting with the area's second-largest Medicare Advantage insurance carrier, Humana. The parties have agreed to divest these practices to Intermountain Healthcare within the next 40 days to remedy these alleged effects.
The conclusion to this process marks the first bit of positive news for Best Idea DaVita in some time. With the transaction finalized and management given the flexibility to shore up the firm's balance sheet, the path toward operational improvement has been derisked from a capital structure perspective. We continue to see sizable upside in shares from current levels and believe shares represent one of the most compelling opportunities in the healthcare sector for long-term investors.
UnitedHealth Group is a health care company. The company has four reportable segments across its two business platforms, UnitedHealthcare and Optum: UnitedHealthcare, which provides health care benefits to an array of customers and markets through its UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global; OptumHealth, which serves the physical, emotional and health-related financial needs of individuals; OptumInsight, which provides services, technology and health care knowledge to main participants in the health care industry; and OptumRx, which provides pharmacy care services and programs.
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