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Humana poses attractive takeover target

Posted On: Jun. 3, 2015 12:00 AM CST

Humana poses attractive takeover target

Rival health insurers looking to buy Humana Inc. likely would be attracted by the potential to diversify their books with the purchase of a major insurer that's established in a fast growing sector of the market.

Humana, the nation's No. 4 publicly traded health insurer in total 2014 revenue, has held preliminary discussions with competitors Aetna Inc. and Cigna Corp. about possibly merging, Thompson Reuters and The Wall Street Journal reported.

“It was pretty well-known that Humana has been up for sale for the last couple of quarters,” said Vishnu Lekraj, Chicago-based senior research analyst at Morningstar Inc.

Valued at $32.01 billion as of Wednesday, a sale of the Louisville, Kentucky-based health insurer would have only a modest impact on the group health care market, given that 7.5 million of its 14.2 million enrollees were in Medicare and Medicare Advantage products, as of March 31, Mr. Lekraj said.

“If you're looking to acquire a prime asset in one of the fastest growing membership groups in the U.S. health insurance market, this is the one you want,” Mr. Lekraj said.

The purchase would also offer diversification benefits to potential acquirers.

“When you look at the names that have emerged as the most likely buyers, they make sense in terms of the makeup of their respective memberships and geographical distributions, as well as their plans for expanding their memberships.”

Mr. Lekraj said Humana's reported interest in a sale likely is driven by its poor performance on health insurance sold through federal and state-run public exchanges established under the health care reform law, as well as higher overall medical expenses in recent quarters.

“To me, that's the main reason an acquisition of Humana is a possibility,” Mr. Lekraj said. “Humana is definitely at a long-term disadvantage operationally, in terms of their ability to drive profit growth.”

Although Humana's revenue grew 17.4% in 2014, its profit fell 6.8% to $2.10 billion, according to its financial filings.

Humana did not respond to requests for comment.