Executives with health care giants Humana and Aetna reiterated their vision Monday to maintain or even increase employment in Louisville after Aetna’s $37 billion purchase of Humana.
They also expressed confidence that antitrust regulators ultimately will give the green light to their arranged marriage.
Aetna CEO Mark Bertolini, Humana CEO Bruce Broussard and Aetna’s new chief financial officer, Shawn Guertin, said during a 50-minute morning conference call with Wall Street analysts that they think the comparatively high price Aetna has committed to pay for Humana will pay off handsomely in the long run.
“Humana is the ideal partner” because of the company’s operational strengths in managed care — a segment that’s growing increasingly competitive in the changing health care landscape, Bertolini said.
The comments came after the two companies announced early last Friday that they had forged a deal for Aetna to pay the equivalent of $230 — in cash and Aetna stock — for each Humana share. That represents a 29 percent premium over what the Louisville-based company’s stock was trading at in late May when news of the takeover discussions surfaced.
The transaction is huge for Louisville because Humana is the city’s second-largest employer behind UPS with about 14,000 well-paid employees and direct contractors. All told, the company has 57,000 employees scattered across several states and ranks as Kentucky’s largest Fortune 500 company.
The CEOs repeated the pledge that Louisville will become the headquarters for the government-related programs — Medicare Advantage, a privately run program for people over age 65 who are eligible for government health care funds; Medicaid, for disabled and low-income individuals; and Tricare, the Department of Defense contract to provide medical coverage and medications for military members and their families.
That means that Aetna’s Medicare Advantage operations in Hartford, Conn., would shift and merge with Humana-branded business in Louisville, Bertolini and Guertin said.
“Louisville will be an important site for us,” Bertolini said, adding that “we will at least maintain employment, if not increase it.”
The downside for Louisville is that the commercial business, a smaller segment of overall local operations, will shift to Aetna, which has a larger presence in the commercial space, he said.
Reponding to questions about how Aetna and Humana executives projected an estimated $1.25 billion in savings from the takeover, executives said that they expect to accrue $1 billion in operating cost reductions, as well as $250 million in network and medical cost savings, including some from merging similar business lines in the respective company headquarters.
Bertolini was less talkative when asked about how federal regulators are likely to scrutinize the proposed transaction that will combine two of the country’s Big 5 health insurers and spawn more consolidation.
Many analysts predict that consumers will be the big loser because they’ll have fewer choice for where to line up health insurance and prescription drug coverage.
Regulators have been reluctant to OK large deals that they view as anti-consumer and anti-competition. The pressure led Comcast to withdraw its $45 billion bid for Time Warner Cable TV.
Electrolux’s $3.3 billion bid for General Electric’s appliance division — which includes Louisville’s Appliance Park — was cast into doubt when the U.S. Justice Department filed an antitrust suit last week to block the deal, citing the potential for price increases from a combined company that would dominate sales of kitchen appliances to home builders, hotels, governments and property managers.
Bertolini said that the Humana price includes a calculation of revenues lost if the company must divest part of the business. “We took a conservative view of what we’d need to divest and included those in the transaction,” he said.
Bertolini declined to comment when asked to say precisely what that divestiture will involve.
If the Federal Trade Commission eventually disallowed the transaction, the terms include a $1 billion payment from Aetna to Humana. “While a billion is a big number,” Guertin said, “this is a big deal.”
Date: July 6, 2015