Arcadian acquisition likely signals more to come by Humana, competitors

Business First - by Steve Ivey , Staff Writer

Date: Monday, August 29, 2011, 10:34am EDT

Ron Bath | Business First

Humana, which bases its headquarters in Louisville, is one of the area's largest employers.

Humana Inc.    Humana Inc. Latest from The Business Journals Humana: Health plan costs decrease with health information exchanges Corporate giving is holding steadyCharity is ingrained in business philosophy Follow this company ’s recent acquisition of a California-based health plan will expand the company’s geographic market and is likely to add to Humana’s earnings over the next two years.

Those were among the findings of a research report released Monday by New York investment firm Sanford C. Bernstein & Co. LLC    Sanford C. Bernstein & Co. LLC Latest from The Business Journals Icahn wants to join, replace Clorox boardExpress Scripts' Medco buy prompts fears of layoffs in N.J.EMC's Tucci: takeover is an option Follow this company .

Humana (NYSE: HUM) announced Aug. 25 it had purchased Arcadian Management Services, the holding company for a Medicare Advantage HMO based in Oakland, Calif.

Terms of the deal were not disclosed, but the Bernstein research report estimated that Humana likely paid about $150 million, based on communications with Humana’s investor-relations department and Arcadian senior management’s commentary.

The report also said Humana was one of more than 10 health plans that competitively bid for Arcadian. Other bidders included Humana’s competitor UnitedHealth Group Inc.    UnitedHealth Group Inc. Latest from The Business Journals Pharmacists, YMCAs getting paid to drive down diabetes risksReal estate vet Bob Best diesReport: Antitrust fears for Express Scripts' Medco buy 'overdone' Follow this company (NYSE: UNH) and five to seven private-equity firms.

“We view this deal to be the harbinger of still more such deals in Medicare Advantage,” the report said.

With Arcadian’s 64,000 Medicare Advantage customers in 15 states, Bernstein expects the deal to add 14 cents per share to Humana’s earnings in 2012 and 21 cents per share in 2013, net of any Arcadian debt servicing and lower investment income.

Arcadian has about $622 million in annual revenue and estimated annual income of $14 million to $18 million, the report said.

Combined with more baby boomers entering the Medicare market beginning this year, Bernstein maintains its bullish outlook for Humana, the report said.