DaVita, Inc. (DVA 67.21, +6.28, +10.2%) struck a deal to sell its DaVita Medical Group to Optum, a unit of UnitedHealth Group (UNH 220.75, +0.66, +0.30), for approximately $4.9 billion in cash. Investors appear to like the decision to do so, as shares of DVA are up sharply in the wake of the news.
DaVita Medical Group accounted for roughly 28% of DaVita, Inc.'s 2016 net revenue of $14.75 billion. The decision to sell the unit will enable DaVita, Inc. to concentrate on its core Kidney Care division, which includes U.S. dialysis and related lab services, and comprised approximately 62% of 2016 consolidated net revenue.
The ability to focus on its core business is a positive consideration for investors, yet it's not the only one.
The other component of the deal striking a chord today is the acknowledgment from DaVita that it intends to use the proceeds from the sale for "significant stock repurchases" over the one to two years following the closing of the transaction.
DaVita has roughly 189 million shares outstanding. Technically, at current prices, the company could repurchase nearly 16% of its outstanding stock using only $2 billion of the proceeds from the transaction.
Pending the proper regulatory approval, the sale of DaVita Medical Group is expected to close in 2018.
Entering today's trading, DVA was down 5.1% in 2017. Including today's gain, it is now up 4.7% for the year.