Healthcare insurer Humana Inc. (HUM, Financial) said it would sell its healthcare unit Concentra for $1.06 billion. Concentra provides urgent health care, occupational health, physical therapy and other healthcare solutions. A joint venture of Select Medical Holdings (SEM, Financial) and private equity firms Welsh Carson,Ă‚ the deal brings together the two competitors for physical therapy services in the United States. Select Media Holdings operates specialty hospitals and outpatient rehabilitation clinics. The deal calls for Select Medical to own 50.1% of the joint venture and Welsh Carson to own the other 49.9%.
Medicare operations of Humana Inc. and Concentra
Humana is a Kentucky-based health insurance company. Humana had over 13 million customers as of 2014 in the U.S., and over 52,000 employees. The Company ranked 73 on the Forbes 500 list. Medicare Advantage is Humana’s core business. Humana also has many subsidiaries that are not directly related to health insurance, such as a pharmacy benefit management company and a home based services unit that remotely cares for seniors.
Concentra is based in Addison, Texas and is a subsidiary of Humana Inc. It runs more than 300 medical centers in 38 states. Humana Inc. bought Concentra for $790 million before present Chief Executive Officer Bruce Broussard took responsibility in 2010.
Concentra was strategically purchased to diversify and expand the healthcare business.
Humana was looking to expand its healthcare services for existing members and bought Concentra. Humana also sold some of its assets in the meantime. Humana’s acquisition of Concentra was one of the first times that an insurer moved into the healthcare provider space during that period. Concentra made $1 billion last year in revenue.
Why the break-up?
Bruce Broussard said in an interview that Concentra did not ultimately align with Humana's strategy as anticipated earlier, but the company will continue to invest in other health care primary assets. Broussard added that “what shareholders should take away from the deal is Humana is constantly looking at their portfolio and shaving of businesses that are not strategically aligned and those which are not yielding returns." Humana has found a better alternative for Concentra's occupational injury unit as primary care platform.
Talks of Concentra’s divestiture first started in last October after Humana hired Goldman Sachs (GS, Financial) to explore options for Concentra. Concentra business did not fit well with Humana’s core medi-care advantage business. This move was expected from Humana as former investment bank executive Brian Kane took the helm as chief financial officer last year, and the insurer’s management raised possibility of selling off non-core business assets.
Parting words
Shares of Humana were down 0.5% in the morning trading. The share prices of Humana slipped to $181.90, while Select Medical rose by 3.3% to $15.11. This deal extends Select Medical’s outpatient segment. Select Medical owns more than 1,000 outpatient clinics rehab clinics and is a rehab care contractor.
Humana Inc. looks to use the proceeds of the sale to buy back the shares and fund growth initiatives by the end of second quarter. Welsh Carson and Tenet Healthcare Corp (THC, Financial) also announced future plans for a joint venture together. This will merge Tenet's short-stay surgery and imaging assets with United Surgical Partners International Inc. (USPI, Financial), which was founded in 1998 by Welsh Carson and healthcare entrepreneur Don Steen.
