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Humana to Exit Weak Markets

Health: Canceled merger with United Healthcare spurs decision to leave areas in Florida and Missouri.

September 16, 1998|From Times Wire Services

LOUISVILLE, Ky. — Humana Inc. said Tuesday that it will withdraw from several unprofitable regions, a decision prompted by its canceled merger with United Healthcare Corp., and take a third-quarter after-tax charge of $84 million.

The managed-care company said it will leave Sarasota and Treasure Coast, Fla., which are predominantly Medicare product markets, and Springfield and Jefferson City, Mo., which are predominantly commercial product markets.

In addition, Humana plans to withdraw from one of its largest Medicaid markets, which it declined to name.

"These actions are the result of a thorough analysis of our business by the management and board of Humana in light of our determination to remain an independent public company," said Humana Chief Executive Gregory Wolf.

Wolf explained that the company was withdrawing from the four regions because it had been planning to merge its operations with United Healthcare. Without the added resources a merger would have yielded, Humana would not be able to turn a profit in the regions, spokesman Greg Donaldson said.

"We may well have made this decision months ago, had we not begun talk of the merger," he said.

The third-quarter charge, totaling $132 million before taxes, includes $63 million for the cost of exiting markets and discontinuing products, among other items. The charge amounts to 50 cents per diluted share. Analysts had expected Humana to earn 33 cents a share in the quarter, up from 27 cents a year ago, according to First Call.

The company had said in August it would take a charge in the third quarter, after the merger with United Healthcare fell through.

The deal, valued at about $6.3 billion when it was announced in May, would have created the nation's largest managed health-care provider.

The two companies called off the merger Aug. 11, days after United Healthcare said it would take a $900-million realignment charge in the second quarter because of problems in Medicare and commercial markets.

At that point, Humana said it would focus on achieving 20% to 25% earnings growth this year.

Humana's plan to exit two unprofitable Medicare markets comes after similar announcements by other large managed-care companies. The managed-care industry is struggling to cope with government plans to cut growth in Medicare HMO payments by about $20 billion over five years.

Humana's stock rose 19 cents to close at $14.69 on the New York Stock Exchange.

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