After deciding they were no longer a strategic fit, Fiserv Inc. has agreed to sell most of its health-care operations to the insurer UnitedHealth Group Inc. of Minnetonka, Minn.
The Brookfield, Wis., banking technology vendor announced the $775 million cash deal Friday.
Fiserv is leaving the health-care market as some of its rivals, which have used a different approach, see significant opportunities in the space, especially in transaction processing.
Thomas Hirsch, a Fiserv executive vice president and its chief financial officer, said in an interview that Fiserv Health, which focuses on administering health plans for employers and insurers, lacked synergy with Fiserv's core business of banking technology and payments processing.
"This is our strategic direction, … to focus on the broad-based opportunities in the financial services industry," Mr. Hirsch said. Not only is the health-care unit a drag on profits, he said, "it's a different customer set, too."
In the third quarter the health plan management business accounted for 29.9% of Fiserv's $1.2 billion of revenue, but Mr. Hirsch said that number was swelled artificially because it included pass-through revenue for pharmaceutical products. The unit accounted for only 8.2% of Fiserv's $206 million of third-quarter operating income.
The health business' low margins pulled down Fiserv's profits. The health unit had a 5% operating margin in the third quarter, compared with 23% for the financial services segment and 18% for the company as a whole.
With the UnitedHealth deal, Fiserv has three major transactions pending, Mr. Hirsch said, all speaking to its efforts to concentrate on banking and payments.
Its deal to buy the Atlanta bill-pay provider CheckFree Corp. is expected to close this quarter, and the sale of its investment services unit is to close in two parts, with TD Ameritrade Holding Corp. buying most of the unit this quarter and the rest selling next quarter.
Fiserv announced last year that it would review all its operations in an initiative it has called Fiserv 2.0, with an eye toward possibly selling or shutting down some units that did not mesh with its goals.
It had hinted in October that the health-care unit might be on that list. At an investor day presentation, Fiserv's chief executive, Jeffery W. Yabuki, said of the unit, "We're not pleased with how we're executing to date."
In Friday's announcement, Mr. Yabuki said that when the deal closes, "Fiserv will be completely focused on expanding its technology leadership position across the financial services landscape."
The sale is expected to close this quarter or next, and Fiserv would net about $475 million after expenses. The company said that the sale could dilute its 2008 earnings per share by 1% to 3%.
Nancy Atkinson, a senior analyst at the research and advisory firm Aite Group LLC, said Fiserv's health unit is a poor fit because it does not focus on payments.
With the deal, she said that Fiserv is "refocusing on the transaction-based activities, the financial activities, rather than the broader provision of health services."
One business that Fiserv is keeping, CareGain Inc., offers a core processing system for health savings accounts, which she said complements the company's main processing activities.
Other banking technology providers offer health-care services, but unlike Fiserv, they have focused on processing payments rather than managing insurance claims.
In September, Jack Henry & Associates Inc. began offering a health savings account product to its clients through a partnership with HealthEquity Inc.
And Metavante Technologies Inc. "has its own health-care segment, which it is promoting heavily" to manage health-care accounts and payments, Ms. Atkinson said. Metavante was spun off from the Milwaukee banking company Marshall & Ilsley Corp. last week.
Donald Layden Jr., the senior executive vice president of corporate development and the president of Metavante International Group, said his company sees health-care providers, insurers, and consumers as links in the payments chain, and that processing health-care transactions dovetails with the overall strategy of facilitating payments.
"We like being in the payment processing business, the movement of money," he said. "We're not interested in being a claims processor for health-care providers."
