PRUDENTIAL HEALTH CARE: HUMANA, WELLPOINT MAY MAKE A BID
As Prudential Insurance Co. of America struggles to sellThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
"its sprawling but unprofitable health care business,"
Louisville, KY-based Humana Inc. and Woodland Hills, CA-based
WellPoint Health Networks Inc. have reportedly "emerged as
finalists" in the bidding process, reports the Wall Street
Journal. Prudential hopes to make about $1.5 billion by selling
its health care unit, which "has about 4.7 million people
enrolled in HMOs" and another two million in "conventional
insurance programs"; the company "has set a deadline of late this
month to wrap up a pact." However, the Journal reports that it
is also possible that Prudential will keep the business or "spin
it off later in a public offering" if it is unable to "strike a
deal at a high enough price."
COLD FEET
"Humana appears to be the front-runner in the contest,
partly because WellPoint Chairman Leonard Schaeffer may be
getting cold feet," according to sources knowledgeable about the
negotiations. Reportedly, however, WellPoint will pay no more
than $1.3 billion -- a sum "well below Prudential's
expectations." Current trends in the managed care industry may
work against Prudential selling the unit for a profitable sum.
The Journal reports that "[a]cquisition-minded HMOs are bent on
strengthening their operations in existing markets, rather than
expanding into new ones." While Prudential has breadth in its
HMO operations, it doesn't have depth in many markets. Buying
Prudential would bolster Humana in Florida, Illinois, Texas and
Missouri but would give it only a "middle-tier position in the
important New Jersey-New York-Connecticut region." Similarly,
Prudential is "solid" in California, WellPoint's power base, but
does not have a "commanding market share." In addition, the
financial position of the Prudential health care unit is not
strong. While the company has made moves to improve the
situation, "the underlying challenges and conditions contributing
to the very weak financial performance still exist," said Moody's
Investors Service senior analyst Patrick Finnegan (Rundle/Scism,
1/14).