WellPoint buys 1-800 Contacts to focus on business-to-consumer market
WellPoint is buying 1-800 Contacts to expand its direct-to-consumer offerings as it aims to gain a larger market share of the individual insurance business and diversify into the "higher-margin" eyewear business.
Although the companies didn't disclose the financial terms of the deal, which was announced Monday, Bloomberg reported that WellPoint will pay private-equity firm Fenway Partners $900 million to purchase the direct-to-consumer eyewear business.
1-800 Contacts, which has about 3.3 million customers, is the largest direct-to-consumer contact lens retailer. It sells contacts, frames and lens for glasses through online and phone orders, Reuters reported.
"We see WellPoint migrating from a business-to-business company to a business-to-consumer organization," WellPoint Chief Financial Officer Wayne DeVeydt told The New York Times Dealbook blog. "The consumer will be the primary customer."
In its shift toward the individual, WellPoint intends to focus on areas that provide more convenient access and lower the cost of goods sold to individuals. By acquiring 1-800 Contacts, WellPoint hopes to reap the benefits of the higher-margin eyewear business, which has after-tax margins in the double digits, compared with WellPoint's own after-tax 4 percent to 5 percent margins, the NYT noted.
DeVeydt added that even if the U.S. Supreme Court overturns the reform law later this month, the deal still makes sense for WellPoint because an increasing amount of employers are passing insurance decisions to their employees. "Health reform really accelerated the movement to the consumer-purchasing environment, but we still see it occurring no matter what," DeVeydt told Bloomberg.
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