Managed Care Matters

THIS WAS A SPECIAL POST IN HONOR OF APRIL 1.

In a deal set to be announced later this week, billionaire Warren Buffett's Berkshire Hathaway unit will be acquiring troubled health plan Wellpoint.

This may be the first of several deals, as Buffett's empire is flush with cash ($40 billion in BH's operations alone) and looking for opportunities in businesses related to its core insurance operations. Indications are the sage of Omaha has been carefully following the fortunes of the health plan sector for years; he had not moved previously because, as he stated in one of his legendary annual letters; "prices are way too rich for my modest resources". The recent dramatic declines in valuation (the sector is down over 35%) appear to have wakened Buffett's legendary bargain-hunting instincts.

Wellpoint's stock is trading just above its 52 week low, at a PE of under 8. Although no price has been mentioned, analysts expect a premium of 15-20%. Given BH's current equity position, and stable stock price, "this will be no problem for them; it will likely be an all stock deal, and any Wellpoint stockholder who doesn't want to trade in their paper for part of Buffett's empire is crazier than Henry Paulson" (Henri Bludgeon, Merrill Lynch).

What does this mean for you?

Watch and learn.

Here's the full press release.