Business

Wal-Mart talking with Humana on closer ties; acquisition possible: sources

(File photo) Walmart signage is displayed outside a company's store in Chicago, Illinois, U.S. November 23, 2016. (REUTERS/Kamil Krzaczynski)
(File photo) Walmart signage is displayed outside a company's store in Chicago, Illinois, U.S. November 23, 2016. (REUTERS/Kamil Krzaczynski)

U.S. retailer Wal-Mart Inc is in early-stage talks with health insurer Humana Inc about developing closer ties, with the acquisition of Humana being discussed as one possibility, people familiar with the matter said on Thursday.

Should the talks lead to a tie up, it would be the latest deal to bring together a retail chain and a health insurer in the last few months, following CVS Health Corp’s $69 billion deal to acquire Aetna Inc and Cigna Corp’s $54 billion deal to buy Express Scripts Holding Co.

Wal-Mart approached Humana earlier this month and the deliberations are preliminary, two of the sources said. While the conversations have focused on new partnerships, an acquisition of Humana by Wal-Mart is also something being discussed, the sources added.

The sources asked not to be identified because the deliberations are confidential. Humana and Wal-Mart declined to comment.

Wal-Mart and Humana have market capitalizations of $264 billion and $37 billion, respectively.

An acquisition of Humana would represent a significant strategic shift for Wal-Mart, which is the world’s largest retailer and has been focused on fending off Amazon.com Inc in online shopping.

Amazon also has been looking at entering the health care sector. Earlier this year, Amazon, Berkshire Hathaway Inc and JPMorgan Chase & Co, said they would form a company aimed at cutting health care costs for their U.S. employees.

“The risks (for Wal-Mart) of becoming entangled in the complex U.S. health care industry are considerable, especially at a time when Wal-Mart is grappling with the competitive challenges of a rapidly shifting retail market,” Neil Saunders, managing director of retail consultancy GlobalData Retail, wrote in a note.

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“The hammering out of any agreement, which would be Walmart’s largest ever corporate deal, would, of itself, be an enormous distraction,” Saunders added.

Wal-Mart currently has a co-branded Medicare drug plan with Humana that steers patients to Wal-Mart stores. The partnership offers a prescription drug plan that can save up to 20 percent in drug costs for customers.

Closer ties between the two companies could allow Wal-Mart to tap into Humana’s patient population, expanding low-level medical services in its pharmacies to avoid ER visits. They could allow it to better manage prescription drug use though access to medical records.

Humana’s biggest business is managing Medicare Advantage health plans for older and disabled people, a heavily regulated business that Wal-Mart would have to take on in an acquisition.

Memberships in retail Medicare Advantage plans — where individuals sign up directly with Humana — rose about 1 percent to 2.86 million, as of Dec. 31. Employer or other group-based Medicare Advantage membership climbed 24 percent to 441,400.

Last month, Wal-Mart reported a sharp drop in profit and online sales growth during the critical holiday period and forecast annual profit at the lower end of expectations.

(Reporting by Carl O’Donnell and Greg Roumeliotis in New York; Additional reporting by Nandita Bose and Michele Gershberg in New York; Editing by Sandra Maler and Leslie Adler)

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