Walgreens, Humana Are in Preliminary Talks to Take Stakes in Each Other

Wide-ranging talks include possibility of expanding clinic partnership

By Dana Mattioli, Michael Siconolfi and Dana Cimilluca

Updated Nov. 20, 2018 4:08 p.m. ET

Drugstore owner Walgreens Boots Alliance Inc. WBA -2.60% and health insurer HumanaInc. HUM -1.02% 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 fromRite 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

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