No loose lips on ru­mored Hu­mana pur­chase

Modern Healthcare - - NEWS - By Bob Her­man

With Hu­mana si­lent on a ru­mored merger, lead­ers of the largest pub­licly traded health in­sur­ance com­pa­nies of­fered no clues at an in­vestor con­fer­ence last week about whether they are bid­ding.

Aetna, An­them and Cigna Corp. pre­sented at the Gold­man Sachs Global Health­care Con­fer­ence in Ran­cho Pa­los Verdes, Calif. Hu­mana, which re­port­edly hired Gold­man Sachs to test the con­sol­i­da­tion wa­ters, backed out of the con­fer­ence and went into a self-im­posed quiet pe­riod un­til the end of July. Brian Kane, Hu­mana’s chief fi­nan­cial of­fi­cer and a for­mer Gold­man Sachs ex­ec­u­tive who worked on man­aged-care trans­ac­tions, can­celed his sched­uled talk.

Many fi­nan­cial an­a­lysts pre­dict Aetna will ac­quire Hu­mana be­cause it would ben­e­fit the most from the deal. Aetna CEO Mark Ber­tolini did not ad­dress the Hu­mana sit­u­a­tion at the con­fer­ence. He said his com­pany would be will­ing to take on debt to fi­nance a trans­ac­tion that makes strate­gic sense, as it did with Coven­try in 2013. But in the long term, Aetna must fo­cus on in­creas­ing sales of its own health plans, he said.

“If you re­ally get down to the strat­egy and what it takes to win, our best use of cap­i­tal is to or­gan­i­cally grow,” Ber­tolini said. “Sooner or later, you run out of as­sets to buy.”

Moody’s In­vestors Ser­vice has a cau­tious view that Aetna will make a play for Hu­mana, a dom­i­nant Medi­care Ad­van­tage com­pany that cov­ers more than 3 mil­lion se­niors. The credit-rat­ing agency up­graded Aetna’s debt last month with “the ex­pec­ta­tion that there will not be a large debt­fi­nanced ac­qui­si­tion over the next 24 months.” As of March 31, Aetna’s debt-to-cap­i­tal ra­tio was al­most 39%, mean­ing ac­qui­si­tion of Hu­mana likely would have to in­clude a large amount of stock eq­uity.

Cigna took on a lot of debt in 2012 when it bought HealthSpring, a Medi­care Ad­van­tage plan. Cigna Chief Fi­nan­cial Of­fi­cer Tom McCarthy said his com­pany is not op­posed to lever­ag­ing debt but adds, “There are dif­fer­ent ways to play the game to win.” Lo­cal mar­ket dy­nam­ics, the abil­ity to en­gage physi­cians to man­age care, and other tan­gen­tial fac­tors dic­tate how Cigna views po­ten­tial tar­gets. “Scale is good, more scale is bet­ter, fo­cus is more im­por­tant,” he said, with­out dis­cussing Hu­mana.

An­them CEO Joseph Swedish said the most valu­able trans­ac­tions are those that es­tab­lish An­them as a top in­surer in a given mar­ket, such as its pre­vi­ous pur­chase of Sim­ply Health­care, a Florida-based HMO for Medi­care and Med­i­caid ben­e­fi­cia­ries. “We’ll be there if the op­por­tu­nity presents it­self,” he said.

In­sur­ers may be hes­i­tant to pull the trig­ger on any deal un­til the U.S. Supreme Court rules this month on the fate of the Af­ford­able Care Act’s pre­mium sub­si­dies.

Moody’s In­vestors Ser­vice has a cau­tious view that Aetna will make a play for Hu­mana, a dom­i­nant Medi­care Ad­van­tage com­pany that cov­ers more than 3 mil­lion se­niors.

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