Business Acquisitions and Divestitures
Amerigroup
In December 2012, we completed our acquisition of Amerigroup, one of the nation’s leading managed care companies focused on meeting the health care needs of financially vulnerable Americans. This acquisition furthers our goal of creating better health care quality at more affordable prices for our customers. Amerigroup also advances our capabilities in effectively and efficiently serving the growing Medicaid population, including the expanding dual eligibles, seniors, persons with disabilities and long-term services and support markets.
We paid $92.00 per share in cash to acquire all of the outstanding shares of Amerigroup for total cash consideration of $4,755.8. In addition, 0.5 shares of Amerigroup restricted stock converted to 0.7 shares of WellPoint restricted stock, valued at $17.1, and 0.1 shares underlying Amerigroup stock options converted to 0.2 shares underlying WellPoint stock options, valued at $2.6. We also incurred $24.0 of transaction costs, which were recorded to general and administrative expense during the year ended December 31, 2012.
In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the fair value of Amerigroup’s assets acquired and liabilities assumed, including identifiable intangible assets. In 2013, we finalized our purchase accounting and made a measurement period adjustment to the fair value of certain assets acquired and liabilities assumed at the date of acquisition. The effect of these adjustments on the preliminary purchase price allocation recorded at December 31, 2012 was an increase to goodwill of $28.9, an increase in other intangible assets of $20.0, a decrease in current liabilities of $1.6, and an increase in noncurrent liabilities of $50.5. The below table and the accompanying consolidated balance sheets reflect the impact of these adjustments.
The excess of the consideration transferred over the estimated fair value of net assets acquired resulted in non-tax-deductible goodwill of $3,062.0, all of which was allocated to our Government Business segment. Goodwill recognized from the acquisition of Amerigroup primarily relates to the future economic benefits arising from expected synergies and is consistent with our stated intentions to strengthen our position and expand operations in the government sector to serve Medicaid and Medicare enrollees.
The following table summarizes the estimated fair values of Amerigroup assets acquired and liabilities assumed:
|
| | | |
Current assets | $ | 2,716.5 |
|
Goodwill | 3,062.0 |
|
Other intangible assets | 975.0 |
|
Other noncurrent assets | 406.1 |
|
Total assets acquired | 7,159.6 |
|
Current liabilities | 1,416.6 |
|
Noncurrent liabilities | 967.5 |
|
Total liabilities assumed | 2,384.1 |
|
Net assets acquired | $ | 4,775.5 |
|
Of the $975.0 of total other intangible assets acquired, $65.0 represents finite-lived customer relationships with an amortization period of three years, $30.0 represents provider and hospital networks with an amortization period of twenty years and $880.0 represents indefinite-lived state Medicaid contracts and trade names.
The results of operations of Amerigroup for the period following December 24, 2012 are included in our consolidated financial statements within our Government Business segment and represented $219.0 of our operating revenue and an offset to net income of $6.1 for the year ended December 31, 2012. The pro-forma effects of this acquisition for periods prior to acquisition were not considered material to our consolidated results of operations.
1-800 CONTACTS
In December 2013, we entered into a definitive agreement to sell our 1-800 CONTACTS business to the private equity firm Thomas H. Lee Partners, L.P. Additionally, we entered into an asset purchase agreement with Luxottica Group to sell our glasses.com related assets (collectively, 1-800 CONTACTS). The operating results for 1-800 CONTACTS are reported as discontinued operations in the accompanying consolidated statements of income. These results were previously reported in the Commercial and Specialty Business segment. Additionally, the assets and liabilities of 1-800-CONTACTS are reported as held for sale in the accompanying consolidated balance sheets. This divestiture will enable us to focus on our core growth opportunities across both our Commercial and Specialty and Government business segments.
Summarized financial information for the 1-800 CONTACTS discontinued operations for the years ended December 31, 2013 and 2012 is as follows: |
| | | | | | | | |
| | 2013 | | 2012 |
Revenues | | $ | 434.7 |
| | 214.5 |
|
| | | | |
Income from discontinued operations before tax | | 17.3 |
| | 7.2 |
|
Income tax (benefit) expense | | (2.6 | ) | | 2.7 |
|
Income from discontinued operations | | 19.9 |
| | 4.5 |
|
Loss on disposal from discontinued operations, net of tax | | (164.5 | ) | | — |
|
Discontinued operations, net of tax | | $ | (144.6 | ) | | $ | 4.5 |
|
In connection with the sale of 1-800 CONTACTS, we recognized a loss on disposal of $221.8, net of an income tax benefit of $57.3 for the year ended December 31, 2013. The loss on disposal was calculated as the difference between the fair value, as determined by the sales agreements less costs to sell, and the carrying value of the held for sale assets at December 31, 2013. The sale was completed on January 31, 2014 and did not result in any material difference to the loss on disposal shown above.
The assets and liabilities of 1-800 CONTACTS are reported as held for sale in the accompanying consolidated balance sheets at December 31, 2013 and 2012 and consist of the following: |
| | | | | | | | |
| | 2013 | | 2012 |
Assets | | | | |
Cash and cash equivalents | | $ | 4.8 |
| | $ | 9.3 |
|
Property and equipment | | 27.6 |
| | 21.0 |
|
Goodwill | | 409.9 |
| | 620.7 |
|
Other intangibles | | 415.4 |
| | 437.3 |
|
Other assets | | 49.2 |
| | 9.7 |
|
Total assets | | $ | 906.9 |
| | $ | 1,098.0 |
|
| | | | |
Liabilities | | | | |
Accounts payable and other accrued expenses | | $ | 34.2 |
| | $ | 33.8 |
|
Deferred income taxes | | 142.5 |
| | 158.1 |
|
Other liabilities | | 4.7 |
| | 15.2 |
|
Total liabilities | | $ | 181.4 |
| | $ | 207.1 |
|
