Humana Seals Metropolitan Health Buy - Analyst Blog

Earlier this week, Humana Inc. (HUM) announced a definitive agreement to acquire Florida-based Metropolitan Health Networks Inc. (MDF) – a medical services organization. The purchase consideration amounts to $850 million, excluding transaction costs.

Accordingly, Humana will pay in cash $11.25 per Metropolitan Health share to the shareholders of the latter. Additionally, the acquiring company will settle the outstanding debt of Metropolitan Health.

Humana plans to finance the acquisition using its cash balance along with borrowings. The company has adequate cash balance to fund the deal. Humana exited the third quarter of 2012 with cash and cash equivalents of $1.36 billion. Nevertheless, expenditure and borrowing always weigh on company’s financials and Humana is no exception.

The purchase is expected to be accretive to Humana’s earnings from the next year, thereby toning down the negative effect. The acquisition is expected to culminate in the first quarter of 2013 if everything moves according to the plan.

The agreement has been approved by the board of both the companies, but is yet to obtain the approval of Metropolitan Health’s shareholders. The deal is also subject to customary closing conditions.

Metropolitan Health has its headquarters in Boca Raton, Florida. The company has a membership base of about 87,500. Thus, it will marginally increase Humana’s medical membership, which stood at 12.02 million at the end of September 2012.

Additionally, the acquisition will add 35 state-of-the-art primary care medical centers to Humana’s primary care network. The company’s members will also gain access to Metropolitan Health’s affiliated physicians.

Following the announcement, rating agency A.M. Best & Co. affirmed the financial strength ratings, issuer credit ratings and debt ratings of Humana and its operating subsidiaries with a stable outlook. Another rating agency Standard & Poor’s Rating Services revealed that the transaction will not affect its ratings on Humana.

Concurrently, Humana also announced the acquisition of Certify Data Systems – a company that facilitates exchange of health care data between healthcare providers and patients. However, the financial and other terms of the transaction were not divulged. The company will now be operated as a subsidy of Humana.

Currently, the shares of Humana carry a Zacks #4 Rank, implying a short-term Sell rating.

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