Walgreens and Humana Are In Early Talks to Swap Stakes -- WSJ
November 21 2018 - 3:02AM
Dow Jones News
By Dana Mattioli, Michael Siconolfi and Dana Cimilluca
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 21, 2018).
Drugstore owner Walgreens Boots Alliance Inc. and health insurer
Humana Inc. are in preliminary discussions to take equity stakes in
each other, according to people familiar with the matter, as
health-industry players scramble for tie-ups that will help them
compete in a rapidly evolving environment.
The companies, which already have a partnership focused on
serving seniors from two Walgreens locations, are having
wide-ranging talks that also include the possibility of expanding
that venture, the people said. Details of the talks couldn't be
learned and there's no guarantee there will be any new deal between
the companies.
Drugstore owners and other health providers are looking for ways
to diversify, bulk up and insulate themselves against external
threats, including from Amazon.com Inc.
The latest talks come nearly a year after Walgreens rival CVS
Health Corp. announced a $69 billion deal to buy insurer Aetna Inc.
The proposed acquisition is aimed at securing new avenues for
growth for the pharmacy company and capturing more of what
consumers spend on health care.
For Walgreens, a closer connection with Humana could replicate
expected benefits of the CVS-Aetna deal at a much lower cost than a
takeover, especially given the strong performance of Humana stock
in recent years. Humana's market value currently stands at about
$42 billion, while Walgreens' is $78 billion. Cross shareholdings
could increase incentives for the companies to work together and
make their partnership work.
Walgreens, based in Deerfield, Ill., has more than 18,500 stores
in 11 countries, including those from equity-method investments.
Its brands include Walgreens and Duane Reade in the U.S. and Boots
abroad. Walgreens earlier this year bought more than 1,900 stores
from Rite Aid Corp. for more than $4 billion. It is one of the
world's largest purchasers of prescription drugs and also has a big
wholesale business, which distributes drugs and other health-care
products to pharmacies, doctors and hospitals in several countries,
mainly in Europe.
Humana, based in Louisville, Ky., had $53.8 billion in revenue
last year and is the second-biggest provider of the private
Medicare plans known as Medicare Advantage. Medicare is viewed as a
growth engine in the insurance industry as baby boomers age into
the program.
In June, the companies announced that a Humana unit would
operate primary care clinics focused on older people in two
Walgreens stores in the Kansas City, Mo., area.
Seniors are heavy users of pharmacies and a focus for Humana
because of its Medicare business. The partnership is part of a
broader effort by Humana to move further into the business of
providing direct care to its Medicare Advantage members. The
company has become a major player in home-care and hospice
services, and it also has a growing primary-care footprint,
including its Partners in Primary Care clinics.
At the time of the announcement, the two companies said they
"could possibly look to expand their collaboration into other
markets over time." Ultimately, the partnership could expand
nationwide, one of the people said.
The budding Walgreens-Humana partnership represents more of a
back-to-basics course for the pharmacy giant. Walgreens had bet big
and lost on a new-age arrangement with Theranos Inc., hosting the
Silicon Valley startup's blood-testing operations in some of its
stores without fully vetting the technology. The relationship was a
disaster and ended in litigation, with Theranos later shuttering
its operations and settling civil-fraud charges with the Securities
and Exchange Commission.
The Humana pact isn't the only old-school arrangement Walgreens
has undertaken recently. Last month, Walgreens said it would expand
its collaboration with LabCorp, a well-established diagnostics
company, with the companies opening at least 600 LabCorp
patient-service centers at Walgreens stores over the next four
years.
Walgreens tried earlier this year to buy AmerisourceBergen
Corp., a drug distributor it owns a big stake in, but the companies
failed to reach a deal.
Indeed, deal making among the various health-care providers has
proved difficult to consummate in recent years. In 2015, Aetna
signed a $34 billion deal to buy Humana, but the proposed takeover
and a similar one fell apart in the face of antitrust challenges.
Earlier this year, Walmart Inc. held preliminary talks to buy or
strike another deal with Humana, but those talks have cooled,
according to people familiar with the matter.
--Anna Wilde Mathews contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com, Michael
Siconolfi at michael.siconolfi@wsj.com and Dana Cimilluca at
dana.cimilluca@wsj.com
(END) Dow Jones Newswires
November 21, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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