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Walmart-Humana sounds wild, but makes sense



As if the Health Fusion frenzy was not already wild enough, it looks like Walmart Inc. may soon be immersed in it.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Mammoth Discounter is reports According to Humana Inc., in early discussions a health insurance company worth $ 41 billion (based on Thursday's stock price spiked in the late news). "data-reactid =" 23 "> The Mammut Discounter is reported to be in early negotiations for discussions with Humana Inc., a $ 41 billion health insurer (based on Thursday's post-trading price, which appeared in the late news).

<p class = "Canvas Atom Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The possible merger comes on the heels of a December Supply chain and pharmacy benefit manager CVS Health Corp. to buy insurer Aetna Inc. for $ 77 billion, including debt – and we mean a lot of debt [more] Later, there was the $ 67 billion merger A similar pairing announced this month between Cigna Corp. and Express Scripts Holdings Co. "data-reactid =" 24 "> The potential merger follows a December offer from drugstore chain and pharmacy benefit manager CVS Health Corp. to insurer Aetna Inc. for $ 77 billion including debt – and we mean a lot of debt (more on that later). There was also the $ 67 billion merger that took place between Cigna Corp. this month. and Express Scripts Holding Co. announced a similar pairing.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "More from Bloomberg.com: EPO Chef's $ 50-a-night rent trips the White House "data-reactid =" 25 "> More from Bloomberg.com: EPO chief $ 50-per-night rent raises anxiety in front of the White House

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) –sm" type = "text" content = "The fact that Amazon.com Inc. – is a recent target for Irishman for President Donald Trump – attracted attention In February, an alliance with Berkshire Hathaway Inc. and JPMorgan Chase & Co. was joined by Warren Buffett The initial attention of the trio will be on their workers, but the threat of Amazon itself will not stand in their way. The industry has the biggest players crawling around to answer . "data-reactid =" 26 "> All this dealmaking is about Amazon.com Inc. – a new target of anger for President Donald Trump – that has health care in mind – with Berkshire Hathaway Inc. and JPMorgan Chase & Co By Warren Buffett, an alliance was signed in February to address employee health costs, with the trio's first focus on their workers, but the Amazon threat that even infiltrates the industry has made the biggest players insist

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Bloomberg News reported The Walmart-Humana talks are about deepening an existing partnership, while a merger is one of the options under investigation, a direct combination is unlikely at the present time. With Walmart's significant pharmacy presence, it would be attractive to grab Humana's Pharmacy Benefits Management (PBM) business. "data-reactid =" 27 "> Bloomberg News reports that the Walmart-Humana talks are aimed at deepening an existing partnership, and that while merger is one of the options being explored, a complete combination is currently unlikely. However, given Walmart's substantial pharmacy presence, taking Humana's Pharmacy Benefits Management (PBM) business would be attractive.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" More from Bloomberg.com: Here's why Trump went post on Amazon "data-reactid =" 28 "> More from Bloomberg.com: Here's why Trump Post went on Amazon

Humana is by far the largest PBM left for potential bidders and could help Walmart keep drug costs down by already managing $ 26 billion in annual drug revenue from egg Ngetragenen and customers.

Humana also has the second largest Medicare presence of an insurer that fits well with Walmart's customer base. Some of Humana's Medicare Part D enrollment actually comes from a partnership with Walmart – the two companies offer a co-branded drug plan that drives traffic to Walmart stores.

The purchase of Humana would help Walmart attract even more registered traffic and bring patients to its inpatient clinics. It would boost sales and give Walmart a solid customer base – all of which will help Amazon retail and grocery retailers.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "More from Bloomberg.com: Shares receive dividend increase of $ 400 billion "data-reactid =" 32 "> More from Bloomberg.com: Stocks receive dividend increase of $ 400 billion

<p class =" canvas nuclear screen -text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" One of Albertson's Cos. & # 39; sales arguments for the acquisition of Rite Aid Corp. in February were that his pharmacy customers were particularly large financiers, even after deducting their drug purchases. Same goes for Walmart and not Walmart's potential Savings from managing health services for its 1.5 million employees are more direct and whole in-house. & nbsp; "data-reactid =" 33 "> One of Albertson's Cos. & # 39; Sales Arguments for the Acquisition of Rite Aid Corp. In February, their pharmacy customers were particularly large donors, even without their drug purchases. The same could apply to Walmart. And do not advise Walmart to capitalize on its savings potential by managing health care directly and fully internally for its 1.5 million employees.

Of course, all this is associated with reservations. Walmart would have to learn a lot about medical care – the administration of one of the largest health insurers in the country is not his specialty. And insurers and PBMs are not exactly loved by consumers. Walmart sends big insurance premiums or tells people which medications or doctors they can not use.

Like CVS, Walmart would also buy at the top of the market. Prior to the IPO, Humana's shares were within range of their $ 291.23 record closing price set on January 29th. The EV / Ebitda multiple of the stock was already on Thursday at 27 percent on its historical two-year average. In the meantime, Walmart's rating was on the decline, which probably explains the sudden interest in major purchases.

<p class = "canvas atom canvas text mb (1.0em) mb (0) – sm mt (0.8em) – sm" type = "text" content = "Still, the bill is behind a walmart -Humana Deal is far less shocking than CVS-Aetna's . Walmart's balance sheet is flawless and its credit rating is Let's go over some hypothetical deal terms: Let's assume that Humana would run a typical 30% takeover premium at its pristine trading level, which represents an offer of about $ 350 per share, and Walmart could pay all cash payments and the deal would even boost returns before even considering any synergies. & Nbsp; "data-reactid =" 36 "> Still, the mathematics behind a Walmart-Humana deal are far less disruptive than CVS-Aetna. Walmart's record is immaculate and his credit rating is top. Let's go over some hypothetical deal terms: Let's say Humana has a typical 30% takeover premium at its pristine trading level. That brings an offer of about $ 350 per share. Walmart could pay all the cash, and the deal would increase profits even before any synergies are involved.

More importantly, Walmart's net debt would only climb to a manageable 2.3-fold Ebitda ratio. And while Walmart and CVS would take out new loans for the transactions and add Ebitda after the closing, Humana would have a net cash position of nearly $ 9 billion.

The real question is how the Trump government and regulators feel on a large scale in the face of these vertical mergers. Would Trump's hatred of Amazon and Jeff Bezos come into play? The fears of Trump distortion have already affected a mega-merger being pulled before a judge (AT & T Inc. Inc.-Time Warner Inc.).

In any case, Walmart made sure of a Humana deal. But the strategic justification is there, and the financial data is not too worrying.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

More from Bloomberg.com

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