by Leslie Small
Just days before CVS Health Corp. said it closed its $69 billion
acquisition of Aetna Inc., reports emerged that another retail pharmacy giant
and health insurer— Walgreen Co. and Humana Inc. — are in preliminary talks to
take equity stakes in each other.
Walgreens and Humana are already collaborating on a pilot
project in which the insurer opened senior- focused primary care clinics in two
Walgreens stores in the Kansas City, Mo., region. Now the companies are in
"wide-ranging" talks about either expanding that venture or taking
stakes in each other, according to The
Wall Street Journal.
If Humana and Walgreens do decide to establish cross-holdings in
each other, it would be "a very interesting and shrewd play," says
Rita Numerof, Ph.D., president and founder of Numerof & Associates.
"We know that a lot of outright M&A doesn't deliver
value at the end of the day," she says. But taking equity stakes in each
other isn't a true acquisition, "so you don’t have all of the risks and
costs associated with bringing [a] business under the umbrella of one that’s
very, very different."
In a note to investors, Leerink analyst Ana Gupte pointed to the
upside for Humana. "Equity stakes are a way for the two companies to share
economics across the different economic pools across clinical, MA distribution
and associated retail pharmacy fills and front store sales, which can drive
several hundred million dollars of value for [Humana] annually in EBIT
[earnings before interest and taxes]."
But Jefferies analysts wondered if perhaps Walgreens might be
the bigger winner, since the pharmacy business model "is under more direct
attack from disruptive players than are health plans" and "partnering
with [Humana] helps [Walgreens] drive market share."
Jay Godla, a partner at PwC's Strategy&, says that there
could certainly be synergies produced by Humana and Walgreens buying stakes in
each other. But any arrangements that are less than a full merger or acquisition
can include issues around commitment, agility, not-so-well aligned goals and
objectives, and inability to make quick decisions, he notes.
The talks reportedly going on between Humana and Walgreens
"could be a starting point for a long-term future merger," Godla
adds.
From Health Plan Weekly
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