Health Insurer UICI to be purchased by Blackstone

Sept. 15 (Bloomberg) -- Blackstone Group, the New York-based firm that's raising the world's biggest buyout fund, agreed to pay $1.71 billion for UICI, a health and life insurer that pioneered the business of selling to the self-employed.



Blackstone, along with buyout units of Goldman Sachs Group Inc. and Credit Suisse Group, will pay $37 a share for UICI, the companies said today in a statement. That's 19 percent more than yesterday's closing price for UICI, which is based outside Dallas.



``We are very impressed with UICI's market leadership, attractive industry fundamentals and strong management,'' Blackstone senior managing director Chinh Chu said in the statement.



The buyout firms will invest more than $1 billion of equity in the transaction, or about 59 percent of the price. In a typical buyout, equity accounts for 20 percent to 30 percent of the price, with the rest funded with debt. Insurance companies can't add a lot of debt without jeopardizing their bond ratings, which are an important marketing tool.



Buyout firms, taking advantage of stagnant stock prices and relatively low interest rates, have disclosed a record $204 billion of takeovers this year, an increase of 56 percent over the same period last year, data compiled by Bloomberg show. The industry has raised $98 billion so far this year, up almost 50 percent from all of 2004, according to London-based Private Equity Intelligence Ltd. Blackstone has commitments for a $12.5 billion global fund, which would be the biggest ever.



The takeover, which requires insurance regulatory approvals, is expected to close in the first quarter of 2006. UICI management and employees are expected to invest more than $125 million in the deal, and the buyout firms plan to raise $500 million in debt, the statement said.



Health Insurance



Health insurance accounted for $657 billion in annual premiums last year, according to the U.S. Centers for Medicare and Medicaid Services, making it the largest product segment of the $1.7 trillion U.S. health-care industry.



Small businesses have been dropping health insurance for employees as premiums have risen 73 percent since 2000, according to a survey released yesterday by the Kaiser Family Foundation and the Health Research and Educational Trust.



UICI and rivals such as Ehealthinsurance.com are targeting small companies and individuals disenchanted with traditional medical coverage to sell health plans with lower premiums and higher deductibles.



UICI's more than 4,800 agents sell health insurance to mostly the self-employed in 44 U.S. states. The company's net income last year rose more than 10-fold to $162 million on revenue of $2 billion.



``We believe that the sales force will be fully supportive of the transaction,'' Troy McQuagge, head of UICI's agency marketing group said in the statement.



Stock



About 74 percent of UICI's customers are self-employed with the rest students and part-time workers. The company's 350,000 customers pay an average of $3,500 to $4,500 for health insurance a year.



Before today's announcement, UICI's stock had fallen 8.3 percent this year compared with the 1.5 percent drop in the Standard & Poor's SmallCap Life & Health Insurance Index.



Members of the Jensen family, which have about 28 percent of UICI's stock, support the buyout, the company said. UICI chief financial officer Mark D. Hauptman wasn't available for comment, his office said. Ronald Jensen, UICI's founder, died Sept. 2 in an automobile accident.



UICI's financial advisers were Morgan Stanley and New Vernon Capital LLC, and its legal adviser was Jones Day. The Blackstone- led group was advised by JPMorgan Chase & Co. and represented by Wachtell, Lipton, Rosen & Katz and Simpson Thacher & Bartlett. JPMorgan, Morgan Stanley, and Goldman Sachs will provide financing for the transaction.



UICI's shares rose $5.13 to $36.21 at 10:27 a.m. in New York Stock Exchange composite trading. The stock earlier reached a 52- week high of $36.77.