Photo by Stephen George
Photo by Stephen George

Humana, the Fortune 500 company founded by Louisville attorneys David Jones Sr. and Wendell Cherry in 1961, has agreed to be sold to Aetna for $37 billion. The companies expect the cash and stock deal, announced early Friday morning, to close in the second quarter of 2016, pending federal regulatory approval.

The deal would combine the second- and fifth-largest health insurers in the U.S. and grow Aetna’s Medicare Advantage membership to 4.4 million with the addition of Humana’s 3.2 million Medicare Advantage customers.

In a joint press release, the two firms said Humana would maintain a “significant” corporate presence in Louisville, where it has more than 12,000 employees; Louisville would remain the headquarters for the newly combined firm’s Medicare, Medicaid and TRICARE businesses The release also cited Humana’s long history of corporate philanthropy in the community.

“Aetna and Humana share a strong commitment to improving the health and well-being of consumers, whatever their needs and wherever they are on their lifelong health journey,” said Bruce D. Broussard, president and CEO of Humana, in a statement. “Through the use of technology and integrated services to simplify the consumer experience, the combined entity will be even more effective in meeting the health needs of many more people — especially people with chronic conditions, who will benefit from Humana’s home health, pharmacy management, and data analytics programs. The transaction is a testament to the accomplishments of Humana associates and an outstanding outcome for our shareholders, who will receive an immediate premium and the opportunity to participate in the growth potential of the combined organization.”

Mayor Greg Fischer issued the following statement Friday morning, indicating he would be available for additional comment later today:

“My team and I have been in regular contact with company leaders to understand the terms of the merger and what it means for our city and state. Our goal is to keep all existing jobs in Louisville and grow even more. Louisville has a depth of human talent in this important business sector and we will demonstrate that depth to the new owners. We will be fighting to grow Humana-Aetna’s presence in Louisville.”

Aetna, which is based in Hartford, Conn., projects its revenue post-acquisition would be $115 billion, more than half of which would come from administering government programs, including Medicare and TRICARE. Aetna CEO Mark Bertolini would remain head of the company, and Humana would add four directors to Aetna’s 12-member board.

“The acquisition of Humana aligns two great companies and will significantly advance our strategy of more effectively serving members in a rapidly changing health care industry,” said Bertolini, in a statement. “This combination will allow us to continue to invest in excellent service for our members and strengthen our partnerships with providers to deliver high quality care at an affordable price. We have great respect for Humana, their talented team, their culture and their strong medical management capabilities. We look forward to working with them following the closing, as we enhance our combined portfolio of innovative health care offerings to provide significant benefits to consumers, employers and providers, and to continue delivering value for our shareholders.”

The companies said the deal would provide $1.25 billion in annual synergies starting in 2018. It was not clear what the impact would be on employees, although redundancies are often the first to fall under this category.

Speculation about a sale has circled Humana since May. Leerink Swann analyst Ana Gupte clearly identified Aetna as the firm most likely to buy Humana as early as mid-May, in a report that kicked off public speculation about a sale.

Humana’s stock closed Thursday at $187.57. The sale price to Aetna represents a significant premium to that recent closing price, about $230 per share, as Humana has such a large presence in the highly coveted world of Medicare Advantage.

Upon learning of the sale Friday morning, Louisville businessman Jonathan Blue told IL this is a “devastating blow,” adding, “We need to do our best to hold onto every single job that we can.”

Humana has more than 12,000 employees in Louisville and 57,000 employees in total. It also has 13 million customers. Of these customers, 3.2 million are in Medicare Advantage, making up 19 percent of that market, second only to UnitedHealth at 20 percent. The total Medicare Advantage market is nearly 17 million people, according to the Kaiser Family Foundation.

How important is Medicare to Humana? In the three months that ended March 31, 2015, 72 percent of their total premiums and service revenues were from Medicare businesses, according to Humana’s most recent quarterly report. Humana’s total Medicare revenues in that time were $8.7 billion.

Humana had total revenues of $48.5 billion last year, and has a market capitalization of $28.9 billion—$8.1 billion short of the sale price. Humana also has $3.8 billion in debt, according to its annual financial report.

Humana was founded in Louisville by Jones and Cherry in 1961. The two lawyers began the firm as a nursing home company called Extendicare. By the late 1960s, that company had gone public and grown into a national juggernaut, and soon it became the nation’s biggest owner and operator of nursing homes.

As Jones told Business First in 2011, he and Cherry then made a decision that would forever change their company. Anticipating a need, they began buying hospitals and established a centralized management structure, an innovation in an industry then dominated by local ownership of hospitals. They rebranded as Humana in 1974 and went on to dominate the industry.

Nine years later, the company got into the health insurance business. And by 1993, Humana–which had a decade before been the nation’s largest owner and operator of hospitals–spun off that division and sharpened its focus on insurance. The following year, Humana landed on the Fortune 500 list, where it has stayed ever since, coming in at No. 58 in 2015.

In recent years, Humana has positioned itself as a wellness company, getting ahead of a trend away from the fee-for-service payment model by focusing more on prevention and health outcomes.

Humana’s influence on Louisville is major, and the company sets the tenor in the city in multiple ways, whether through its huge local philanthropic efforts, its relationships with area vendors, or its massive real estate holdings here.

Humana’s top execs, including CEO Bruce Broussard, will be paid handsomely upon the completed sale of the firm if they lose their jobs as a result. Broussard would receive a golden parachute valued at $16.9 million if there was a change in control, meaning if he lost his job due to a sale of Humana. (For a more complete list of these golden parachutes see IL’s previous reporting here.)

The deal is pending regulatory approval. As evidenced by the U.S. Department of Justice’s new antitrust lawsuit regarding the pending sale of GE Appliances to Electrolux, such approval is not a given.

David Serchuk
David Serchuk is a staff writer at Insider Louisville. He is a former editor at Forbes.com, and an ex-reporter at Forbes magazine. He's written for NPR, CNBC.com, New York, Pittsburgh, Louisville and other publications named for places. He enjoys writing about business, music and other things as well.