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Home / Business / Why would Walmart want to buy an insurer? The retail squeeze

Why would Walmart want to buy an insurer? The retail squeeze



First,

Walmart
Inc.


WMT 1.37%

dropped "shops" from its official name. The retail giant, which is facing shrinking profits and looking for growth, is looking for an acquisition that would go far beyond its big roots.

On Thursday, the Wall Street Journal reported that the largest retailer in the world is in preliminary discussions to purchase is US health insurer Humana Inc., according to people who are familiar with the situation. Companies discuss various options, one person said, and there is no guarantee that they will agree on a merger or other partnership.

Walmart's sales exceeded $ 500 billion in its last fiscal year ̵

1; more than Apple Inc. and

Exxon Mobile
Corp.

combined. But Walmart's profits have dropped 30% to $ 10.5 billion in three years, driven by competitive and e-commerce defense investments

Amazon.de
Inc.


AMZN 1.11%

"The company is so large that the possibilities for future expansion in the US are limited," said

Neil Saunders,

Managing Director of GlobalData Retail, a consulting firm. "Coming to this pitch would give Walmart a whole new arena to expand in," he said.

"The risks of getting caught up in the complex US healthcare industry are still considerable," Mr. Saunders added.

The acquisition of a health insurer would put the retailer in a complicated and tightly regulated business Humana is particularly attached to the government because it focuses on Medicare at a time when health care is a political hotbed.

However, Humana has withdrawn from the Affordable Care Act after suffering losses, and the Private Medicare plans it offers, known as Medicare Advantage, have recently been protected by Republicans and Democrats.

A Humana deal would also be a high Walmart issue, Humana has a market value of $ 37 billion and a buyer would need a premium The largest acquisition of Walmart took place in 1999, when the company acquired Asda Group P LC bought for $ 10.8 billion. Walmart ended the fiscal year with cash under $ 7 billion.

In recent years, Walmart has expanded the pharmacy and healthcare services in stores, adding cheaper generic drugs for sale, procedures such as vaccines and emergency services. It's part of the effort to give buyers another reason to visit the cavernous places of Walmart, even if they buy more online.

Walmart is also the largest food seller in the US, putting it in a unique position to use buyer data. Use a health insurance company's data to make decisions about which products should be transported in stores. According to Kantar Consulting, the average age of a Walmart customer is 50 and has grown older over the past five years, in line with broader US buyers.

"If I take you for your health care and your medications … then you'll hopefully buy blue jeans and laundry detergent," said Steve Barr, head of hypermarkets at PwC.

Walmart and Humana have partnered for over 10 years with a popular Medicare drug plan, and customers are filling out prescription drugs at low-value Walmart pharmacies.

"They have proven that these two companies can work together in retail," said John Gorman, chairman of the Gorman Health Group, a consultancy specializing in government health programs. A merged Walmart-Humana could create a Medicare plan that could be sold in Walmart stores and unlock other potential health services from Walmart.

In addition, he said that Walmart's weight as a major buyer of goods including drugs could be able to bring savings to Humana and its members. Humana already has its own pharmacy usage manager, but it's smaller than the giants in the business, such as:

CVS health
Corp.

and

Hold express scripts
Co.

and has less impact on pharmaceutical companies. Express Scripts has agreed to provide insurance from Cigna Corp. to be bought while CVS wants to take over the acquisition

Aetna
Inc.

For Humana, joining Walmart could also provide opportunities to get closer to consumers, track them through richer data, and lower the cost of care by moving some services to a more favorable environment. Humana has already stepped deeper into health care to manage its members. It works closely with medical groups and plans to acquire a stake in a home and hospice operator.

But Walmart's businesses are not as omnipresent as CVS, said Sarah James, an analyst with Piper Jaffray. "It will not give them the same footprint as CVS," she said, as the stores are not as integrated in the neighborhoods as the smaller drugstores. This could limit Walmart's ability to be a convenient point of contact for consumers with routine health issues or needs, she said.

Please contact Sarah Nassauer at sarah.nassauer@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com


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