WellPoint Agrees to Sell 1-800-Contacts to Thomas H. Lee

Jan 08, 2014 4:26 pm ET

(Updates with closing stock price in sixth paragraph.)

Jan. 8 (Bloomberg) -- WellPoint Inc. agreed to sell online contact-lens site 1-800-Contacts to private equity firm Thomas H. Lee Partners LP to focus on building its insurance business with the start of Obamacare’s expanded coverage.

Financial terms weren’t disclosed. The sale will result in a charge of 52 cents to 57 cents a share for the fourth quarter of 2013, Indianapolis-based WellPoint said yesterday in a statement. WellPoint also plans to sell Glasses.com, part of the contact-lens retail operation, to Luxottica Group SpA.

WellPoint, the second-largest U.S. health insurer, is gearing up for the millions of people who obtained medical coverage for 2014 through the government marketplaces set up by the Patient Protection and Affordable Care Act. The 1-800- Contacts sale will raise money for WellPoint’s main business, Chief Executive Officer Joseph Swedish said in the statement.

“Unlike peers that are moving toward diversification and vertical integration, WellPoint’s new CEO is focusing on streamlining operations and growing in the commercial segment through the health insurance exchanges,” Sarah James, a Wedbush Securities Inc. analyst in Los Angeles, said in a note.

WellPoint’s charge against its earnings for the sale may be as much as $168 million, based on 295.4 million shares outstanding, according to data compiled by Bloomberg.

WellPoint rose 1.3 percent to $92.22 at the close in New York. The company gained 54 percent in the past 12 months.

The insurer also said today that it would extend by five days to Jan. 15 the deadline for new customers who sign up through the Affordable Care Act to pay their first premiums. New enrollees must make their first payment to gain coverage from their new health plans.

Decisive Action

“We see the transaction as a decisive action by new CEO Joseph Swedish to reverse one of the less-popular moves by his predecessor,” Ana Gupte, an analyst with Leerink Partners in New York, said in a note about the sale of the contact lens unit.

WellPoint, which operates Blue Cross and Blue Shield plans in 14 states including California and New York, bought 1-800 Contacts from the private equity firm Fenway Partners in June 2012 for about $900 million. The purchase wasn’t popular with investors and WellPoint CEO Angela Braly left the company about three months later. Swedish was appointed CEO in February 2013.

“The fact they’re selling it 18 months after they bought it for a loss indicated it probably didn’t belong under WellPoint in the first place and it’s probably a good thing they’re disposing of it,” Les Funtleyder, an industry analyst and author of the book “Health-Care Investing,” said in a telephone interview.

--Editors: Bruce Rule, Andrew Pollack