Insurtech company Bright Health has agreed to sell its California insurance plans to Molina Healthcare for up to $600 million in cash. The deal is contingent on Bright Health maintaining solvency until the first quarter of 2024. Molina will purchase 100% of Bright’s California subsidiaries, exiting Bright from the insurance business. The acquisition aligns with Molina’s growth strategy, adding 125,000 members and expanding its presence in California. The transaction is subject to regulatory approvals and is expected to boost Molina’s share price.
Bright Health, the beleaguered insurtech firm, has found a buyer for its remaining insurance business. In a filing with the Securities and Exchange Commission on Friday, the insurer announced its intention to sell its California plans to Molina Healthcare for up to $600 million in cash. This development comes at a critical time for Bright Health, which needed to secure significant capital by the end of the week to continue operations until the end of the year.
The completion of the deal hinges upon Bright Health maintaining its solvency throughout the remainder of 2023 and the first quarter of 2024, suggesting that the company will likely need to secure a bridge loan to meet its financial obligations. However, Molina Healthcare has stated that it will not be providing such a loan, according to Ari Gottlieb, Principal at A2 Strategy Group, as reported by Fierce Healthcare. This cautious approach by Molina seems to be aimed at minimizing its risk exposure.
Gottlieb commented, “Molina’s decision not to offer bridge financing reflects its efforts to limit downside risks. Bright Health has the responsibility of funding all the losses for the rest of the year. Additionally, if the membership declines, there will be a reduction in the purchase price. Hence, it is a favorable deal for Molina.”
Molina Healthcare, in a press release, stated that the successful completion of the agreement depends on “the solvency and continued operation as a going concern of Bright Health Group throughout the pre-closing period and other closing conditions.” The deal was valued by Molina at $510 million, including a $90 million tax benefit.
Molina, a provider of Medicaid and Medicare plans, intends to fund the acquisition using available funds, and cash on hand and will need to obtain state and federal regulatory approvals. The announcement of the deal is expected to boost Molina’s share price by $1, resulting in a share price of $5.50.
Joe Zubretsky, President and CEO of Molina, expressed enthusiasm about the acquisition, stating, “These additions fit perfectly with our strategy of serving high-acuity, low-income members and represent a textbook execution of our growth playbook. We acquire viable assets at attractive valuations, then deploy our proven team of operators to deliver improved financial results. We are pleased to continue our meaningful growth in California as the latest realization of our national growth strategy.”
Under the terms of the agreement, Molina will acquire 100% of the issued and outstanding capital stock of Bright subsidiaries Bright New Day and Central Health Plan in California, effectively exiting Bright from the insurance business. However, Bright will still retain ownership of its provider arm, Bright HealthCare Provider Services.
Gottlieb remarked on the transaction, saying, “They believe that a change in ownership alone will make this a more profitable business, which is an interesting claim, to begin with, right? They are also set to gain a $100 million tax benefit if the deal goes through.”
Bright Health currently serves approximately 125,000 members in 23 counties in California, offering Medicare Advantage prescription drug plans, dual eligible special needs plans, and chronic conditions special needs plans. The press release highlights a 60% overlap with Molina’s managed Medicaid plans. Molina stated that the acquisition will accelerate the D-SNP option for Los Angeles County, a deal that had been negotiated with the state.
In April, Bright Health announced its intention to sell off its Medicare Advantage plans to avoid bankruptcy. The company also faced criticism when its top executives awarded themselves substantial bonuses amidst the company’s financial struggles. Gottlieb anticipates that these executives will likely benefit from the Molina deal as well, receiving bonuses for successfully selling the business.
