Humana to Buy Closely Held Concentra for $790 Million To Add More Services
Humana Inc., the health plan with the best-performing stock this year, agreed to buy Concentra Inc. for $790 million, expanding into medical services as it faces funding cuts and regulation from the U.S. health-care law.
The cash deal is expected to close next month and add slightly to earnings next year, the Louisville, Kentucky-based insurer said today in a statement. Closely held Concentra, based in Addison, Texas, generates about $800 million in yearly revenue from 240 workplace health-care facilities and more than 300 medical centers in 42 states, Humana said.
Insurers want to diversify as the health law squeezes the profits they can make from selling benefits, and as they prepare for millions of new customers to be gained from the legislation, said Dave Shove, a BMO Capital Markets analyst in New York. Today’s deal will provide urgent care, wellness programs, and physical and occupational therapy to 3 million Humana members near a Concentra center, Humana said in its statement.
“Humana is convinced that there’s going to be more and more of a retail mindset to health care,” Shove said today in a telephone interview. “Like all retailers, they want to have more ways to build a relationship with their consumer and this is another step in that direction.”
Humana rose $2.31, or 4.1 percent, to $58.34 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest single-day increase in more than five months. The shares have gained 33 percent this year, outperforming the 5 other members of the Standard & Poor’s 500 Managed Health Care Index.
Humana Acquisitions
Humana has announced 11 pending or completed acquisitions in the past five years, with an average price of $234.2 million and an average premium of 34 percent. Concerta would be the largest deal in that period, according to Bloomberg data.
Humana said last week that it expects earnings to fall next year as the health law reduces government spending for private insurers providing Medicare plans for the elderly. Medicare premiums accounted for 61 percent of the company’s $31 billion in revenue last year, according to data compiled by Bloomberg.
“We’re looking at the aging of the baby boomer population” and a projected shortage of primary-care doctors in the U.S., Jim Turner, a Humana spokesman, said in a telephone interview. “We just see a greater need for access to the kind of care that Concentra provides.”
The acquisition gives Humana “both revenue diversification and opportunities for strategic expansion longer term,” said Michael B. McCallister, Humana’s chief executive officer, in the statement.
Adding Concentra will move Humana back toward its roots as a medical provider and a managed-care company, Turner said. Humana began as a nursing-home company in 1961 and grew into the largest owner of U.S. hospitals in the 1980s until that side of the business was spun off in 1993, he said.
To contact the reporters on this story: Catherine Larkin in Washington at clarkin4@bloomberg.net; Alex Nussbaum in New York anussbaum1@bloomberg.net.
To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.