Quarterly report pursuant to Section 13 or 15(d)

Acquisitions and Divestitures

v3.22.2
Acquisitions and Divestitures
6 Months Ended
Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Acquisitions and Divestitures Acquisitions and Divestitures
Magellan Acquisition

On January 4, 2022, the Company acquired all of the issued and outstanding shares of Magellan. Total consideration for the acquisition was $2,561 million, consisting of $2,501 million in cash and $60 million related to the fair value of replacement equity awards associated with pre-combination service. The Company recognized $7 million and $92 million of acquisition related expenses related to Magellan, that were in the Consolidated Statement of Operations for the three and six months ended June 30, 2022.

The Magellan Acquisition was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. The assessment of fair value on all assets acquired and liabilities assumed is preliminary and, accordingly, the Company has recorded provisional amounts which are subject to adjustment. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.
The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 4, 2022 is as follows ($ in millions):
Assets acquired and liabilities assumed  
Cash and cash equivalents
$ 997 
Premium and related receivables
855 
Short-term investments
144 
Other current assets
225 
Long-term investments
43 
Restricted deposits
Property, software and equipment
90 
Intangible assets (a)
600 
Other long-term assets 50 
Total assets acquired 3,011 
Medical claims liability 249 
Accounts payable and accrued expenses 495 
Return of premium payable 75 
Unearned revenue
Current portion of long-term debt
Long-term debt (b)
542 
Deferred tax liabilities (c)
81 
Other long-term liabilities 68 
Total liabilities assumed 1,523 
Mezzanine equity 32 
Total identifiable net assets 1,456 
Goodwill (d)
1,105 
Total assets acquired and liabilities assumed
$ 2,561 

The Company has made the following preliminary fair value adjustments based on information reviewed through June 30, 2022. Significant fair value adjustments are noted as follows:

(a) The identifiable intangible assets acquired are to be measured at fair value as of the completion of the acquisition. The fair value of intangible assets will be determined primarily using variations of the income approach, which is based on the present value of the future after tax cash flows attributable to each identified intangible asset. Other valuation methods, including the market approach and cost approach, will be considered in estimating the fair value. The identifiable intangible assets include purchased contract rights, trade names, provider contracts and developed technologies. The Company has estimated the preliminary fair value of intangible assets to be $600 million with a weighted average life of 12 years.

The preliminary fair values and weighted average useful lives for identifiable intangible assets acquired are as follows:
Fair Value Weighted Average Useful Life (in years)
Purchased contract rights $ 400 
Provider contracts 100 
Trade names 50 
Developed technologies 50 
Total intangible assets acquired $ 600  12

(b) Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of Magellan's Senior Notes and Credit Agreement assumed in the acquisition was $535 million. In January 2022, the Company paid off Magellan's debt acquired in the transaction using Magellan's cash on hand.

(c) The preliminary deferred tax liabilities are presented net of $115 million of deferred tax assets.
(d) Goodwill is estimated at $1,105 million and primarily relates to synergies expected from the acquisition and the assembled workforce of Magellan. The assignment of goodwill to the Company’s respective segments has not been completed at this time, but the majority of goodwill is expected to be allocated to the Specialty segment. The majority of the goodwill is not deductible for income tax purposes.

PANTHERx Rare Divestiture

On May 5, 2022, the Company signed a definitive agreement to sell PANTHERx Rare (PANTHERx), which is included in the Specialty Services segment. As of June 30, 2022, the assets and liabilities of PANTHERx were considered held for sale resulting in $1,274 million of assets held for sale in Other Current Assets and $318 million of liabilities held for sale in Accounts Payable and Accrued Expenses on the Consolidated Balance Sheet. The majority of the of held for sale assets were previously reported as goodwill and intangible assets. On July 14, 2022, the Company completed the previously announced sale of PANTHERx for approximately $1,400 million. The Company estimates that it will recognize an after-tax gain of approximately $400 million, subject to purchase price adjustments.

Spanish and Central European Divestiture

On July 25, 2022, as part of the Company’s previously announced review of strategic alternatives for its international portfolio, the Company announced it has signed a definitive agreement to sell its ownership stakes in its Spanish and Central European businesses, including Ribera Salud, Torrejón Salud, and Pro Diagnostics Group. The Company estimates it will recognize an after-tax loss of approximately $125 million to $150 million, which will fluctuate with changes in the foreign currency exchange rate and the carrying value of the businesses. The pending divestiture is subject to regulatory approvals and satisfaction of customary closing conditions.