Mayor Greg Fischer is casting the sale of Humana as a potential positive for the city, saying he believes the deal could actually lead to more jobs in Louisville.
As previously reported by IL, Humana has agreed to be purchased by Aetna for $37 billion, or $230 per share. Humana’s shares closed at $187.57 on Thursday, before the buyout was announced.
During a press conference today at Metro Hall, Fischer said the chief reason Louisville residents should be optimistic about the buyout is because the newly merged firm’s Medicare, Medicaid and Tricare businesses will be headquartered in Louisville. This part of the health insurance business is growing at a rapid clip, and is a large part of what made Humana such a coveted buyout property. Humana has 3.2 million Medicare Advantage customers, versus Aetna’s 1.2 million Medicare Advantage customers.
“The announcement that Louisville will be the headquarters for the Medicare, Medicaid and Tricare businesses is a very, very positive sign for Humana employees in our city,” he said. “Consider that the combined revenue of the new company’s business in the government sector will be larger than the existing revenue of Humana today. That bodes very well for local employment … you can speculate job growth will be there, because job growth follows revenue.”
Fischer quoted the figure — which was in today’s joint press release from both firms — that 56 percent of the combined firm’s operating revenues (projected to be $115 billion in 2015) would come from government-sponsored programs, including Medicare and Medicaid.
He added Aetna realized Humana’s huge importance to this key part of the health insurance market, which is what led to this buyout.
Fischer also said he and his team would urge Connecticut-based Aetna to make Louisville its headquarters for the new firm. “My team, along with (Gov. Steve Beshear’s) team will do everything possible to grow jobs related this transaction in the city, and compete for the headquarters as well,” he said.
In addition, Fischer said he has spoken with Humana CEO Bruce Broussard about the fate of the Humana Foundation, the firm’s philanthropic arm; Broussard indicated the Foundation was not part of the proposed merger and will continue to operate as it always has in Louisville.
Larry Hayes, secretary of the Kentucky Cabinet for Economic Development, said the state is optimistic about this merger, adding there could be state and city incentives to help spur Aetna to bring new jobs to Louisville. He declined to elaborate, however, saying it is still so early in the buyout process.
Kent Oyler, head of Greater Louisville Inc., said one reason Aetna wants to buy Humana is because it is such a professionally run firm and has done very well for shareholders.
Assuming the buyout is approved, Humana will have four representatives on the new firm’s board of directors, while Aetna will have 12. This means Humana board members will have relatively little power.
We asked Oyler if Humana could have negotiated a better deal, where it would have had more influence. Oyler said Humana’s board negotiated a good deal for its shareholders, which is its first responsibility.
“Whatever deal they cut was pretty strong for their shareholders, and their duty is to their shareholders,” Oyler said. Issues like board representation, and even who runs the firm, are lower priorities for Humana’s board than maximizing shareholder value, he said. “And it looks to me like they cut a pretty good deal for their shareholders.”
In an official statement, U.S. Rep. John Yarmuth (KY-3) called the news of the merger disappointing, though he said he was encouraged to see that Aetna plans to maintain a strong presence in Louisville, and that the Humana Foundation will remain intact.
“This potential deal is the latest in the decades-long trend of consolidation in the health care industry, and it is appropriate for the Department of Justice to scrutinize the pending merger to ensure it does not reduce competition, and therefore, consumers’ options,” he said. “If this deal is approved, I intend to continue working with Mayor Fischer and other leaders to make the case that Aetna should expand their operations in Louisville.”
Gov. Beshear released the following statement in the wake of this morning’s news:
“In addition to the information contained in the news release, I have spoken to Bruce Broussard, CEO of Humana, this morning and Mark Bertolini, CEO of Aetna, earlier this week. Based upon all the information available, I am cautiously optimistic that this merger will be a net positive for Louisville and the Commonwealth. Both Humana and Aetna are progressive, innovative companies in the health care field, and that bodes well for the new entity because of the rapidly changing health care landscape. Mayor Fischer and I look forward to further conversations with both Mr. Broussard and Mr. Bertolini about the details of the transaction and the potential for the growth of jobs in Kentucky. Both of us are also pleased that the Humana Foundation will be separated out of the transaction and will remain in Louisville.”
David Dubofsky, a business professor at the University of Louisville, said that while Humana’s shareholders would do well via this buyout, its executives would do even better. (For a list of the “golden parachutes” Humana’s execs could receive if there is a buyout, click here.)
He also was skeptical this deal will reap the benefits touted by Fischer. “The merger of Humana and Aetna will not be good for Louisville, Humana’s employees or consumers,” he said. “But at least all affected parties will have a year before any negative impacts begin to emerge.”
Dubofsky expects the deal will be approved by the U.S. Department of Justice, but the combined firm would be forced to reduce its market share and/or concentration in some markets. “I am sure that the Aetna and Humana managements know this is likely,” he said.