What would an acquisition of Humana mean for Walmart and its rivals?
Walmart is in early stage talks to acquire Humana, the second largest Medicare provider and a top health insurer, The Wall Street Journal reported Friday.
The report, confirmed by others, indicated the two are also discussing forming a closer partnership. Walmart has a co-branded drug plan with Humana offering prescription drug plans for individuals enrolled in Medicare.
The speculation of a hook-up comes as insurers are striking mega-deals with partners down the supply chain amid scrutiny over rising healthcare costs.
December’s news of CVS Health Corp’s $77 billion agreement to acquire Aetna had already led some analysts to predict a merger of Walmart and Humana. On March 8, Cigna struck a $52-billion deal to buy pharmacy benefits manager (PBM) Express Scripts.
Rumors are also circulating that Amazon is planning to enter the healthcare market. The e-commerce leader’s alliance reached in February with Berkshire Hathaway and JPMorgan Chase is aimed at reducing employee health costs.
An acquisition of Humana’s pharmacy benefits management (PBM) business would enable Walmart to better control healthcare for its employees, defend against rivals and enter a category growing faster than retail.
Neil Saunders, managing director of GlobalData Retail and a RetailWire BrainTrust panelist, told CNN, “Moving onto this turf would give Walmart a whole new arena in which to expand [and] would be valuable at a time when its retail margins are under pressure.”
Pharmacy customers have also proven to be bigger spenders across the store, and being able to offer competitive rates on primary care and other health services could help drive overall retail traffic. Walmart’s in-store clinics could be better positioned to play a larger role as healthcare centers offering basic medical care.
Humana, however, currently valued at about $37 billion, would be Walmart’s largest acquisition of all time and would place the retailer in a category well out of its area of expertise. Insurers generally have a poor reputation with consumers amid frustrations over claim reimbursements. Such a large-scale vertical merger would also face anti-trust concerns.
- Walmart in Early-Stage Acquisition Talks With Humana – The Wall Street Journal
- Walmart-Humana Sounds Wild, But Makes Sense – Bloomberg
- Walmart in talks with Humana for deeper partnership – Bloomberg
- Come for your drugs, leave with more shopping: Walmart’s new growth strategy? – Reuters
- Why Walmart may want to buy Humana – CNN
DISCUSSION QUESTIONS: Does an acquisition of Humana make sense for Walmart? How would you weigh the pros and cons of such a combination?