U.S. Health Insurer Humana Inc. (HUM) announced a joint venture with South Africa-based Discovery Holdings Ltd. to provide a wellness and loyalty program to its clients. The joint venture is also a strategic fit as it emphasizes cost-management through wellness and prevention.
According to the terms of the deal, Humana will form a new entity called HumanaVitality, LLC in which South Africa-based Discovery will hold a 25% stake. The headquarters of HumanaVitality will be opened this month in Chicago. Humana will also acquire a 25% in the business of The Vitality Group, Discovery’s U.S. subsidiary.
However, the financial details of the transaction were not disclosed. The joint venture is subject to approval by the South African Reserve Bank.
The deal is in line with Humana’s consumer-focused strategy. It will offer Humana’s customers access to the comprehensive Vitality wellness solution of Discovery. Also, Discovery will be able to leverage Humana’s strong customer base to sell its plans.
On December 22, 2010, Humana had acquired Concentra, which is a private health care company based in Addison, for $790 million in cash, in order to expand its footprint in nationwide medical services.
Consolidated revenues for 2011 at Humana are projected to increase in connection with this transaction. Concentra produces approximately $800 million of revenues annually from 240 workplace health care facilities and more than 300 medical centers in 42 states.
Moreover, the acquisition of Concentra will increase Humana’s focus on its core businesses as a health care provider, besides providing revenue diversification and opportunities for strategic expansion over the longer term. Additionally, Concentra will provide access to Humana’s medical members in their respective geographical coverage.
Many of the major players, such as UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP), made a number of acquisitions during the past five years and are expected to continue such activities through 2015. The industry is expected to carry on consolidation, as insurers try to cut costs and improve profitability.
At the same time, larger firms benefit from a greater bargaining power in determining health care rates with medical providers such as doctors, hospitals and pharmacies.
Currently, Humana shares have a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation.
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