Does DaVita Acquisition Make Warren Buffett Rethink His Kidney Dialysis Bet?

DaVita Inc. (NYSE: DVA) is facing a bit of a drag on its announcement that it is spending some $4.4 billion to acquire HealthCare Partners.  This is a transformative deal because DaVita is the leader in kidney dialysis centers and HealthCare Partners operates medical groups and physician networks in only three states.

What is interesting here is that this suddenly makes the new portfolio management team at Berkshire Hathaway Inc. (NYSE: BRK-A)(NYSE: BRK-B) have to consider whether or not the “forever” time period applies to its relatively new investment here.

HealthCare Partners operates centers in Central Florida, Southern Nevada and also in Southern California. The outfit has just over 150 clinics, about 700 staff physicians, and it has a network comprised of over 8,300 doctors who operate independently. It provides and coordinates these services to over 667,000 managed care patients on a comprehensive capitated basis.

The terms of the deal call for DaVita to pay $3.66 billion in cash from its cash on hand and to borrow under its credit facility and to take on new debt.  The company also plans to issue almost 9.4 million shares valued at another $758 million or so before the dilution and there may be another $250 million or so in cash payments to partners if certain milestones are reached.

HealthCare Partners generated about $2.4 billion in sales and operating income was roughly $488 million in 2011.  DaVita generated $6.98 billion in sales with $1.13 billion in operating income in 2011.

Our question is whether or not this implies that DaVita is wanting to diversify further and further away from kidney care.  HealthCare Partners is called “a leader in multispecialty integrated and coordinated care delivery” and its website shows a much more general angle of care compared to DaVita.

Buffett’s most recent Berkshire Hathaway holdings shows in the filing that his 6 million shares were worth $90.17 at the March 31 cut-off date. DaVita shares are now down 1.8% at $79.35.

JON C. OGG