Walmart in early talks to buy insurer Humana, report says

Walmart has waded into preliminary negotiations on a possible purchase of Louisville-based health insurer, Humana, according a news report. 

No potential terms were disclosed, The Wall Street Journal reported Thursday in a story that cited people familiar with the matter.

Humana (HUM) shares surged 10% in after hours trading. Walmart (WMT) shares lost 1%.

Spokespersons for Humana did not immediately respond to a request for comment. Walmart said in a statement that it does not comment on rumors or speculation.

The Wall Street Journal report cautioned that there was no guarantee that the deal would materialize. But the move would make sense at a time when retailers are increasingly moving into the health care space, and business moguls such as Warren Buffett and Amazon founder Jeff Bezos are looking at how to make medical services more efficient and less expensive for their employees.

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There has been much speculation about other insurance companies or retailers eyeing a tie-up with Humana. Insurer Aetna was a suitor, though the proposed merger with Humana was scrapped after a federal judge ruled it would limit competition.

Then in December, Ana Gupte, a senior analyst at Leerink Partners, said that a rival insurer or a retailer like Walmart or Walgreens might make a play for Humana after drug-store chain CVS unveiled plans to buy Aetna for $69 billion in cash and stock.

For Walmart, buying Humana would be another volley in its ongoing battle with online giant Amazon, which is reportedly considering selling prescription drugs.

Though such a move would require Amazon to overcome various regulatory roadblocks, just the idea that the e-commerce giant could move into the pharmacy space was viewed as one of the factors that spurred CVS's merger with Aetna.

Some of the nation's most well-known executives are also tackling health care. In January, Amazon, Berkshire Hathaway and JPMorgan Chase & Co. announced that they were working together to explore ways to improve health care and lower its cost for their hundreds of thousands of employees in the U.S.

In its competition with Amazon, Walmart has been buying up various websites, including Jet.com, to improve and expand its online presence. But buying Humana, which currently has a market value of roughly $37 billion according to the Journal, would be the retailer's biggest acquisition. 

Walmart and Humana have worked together since 2010 to offer low-cost prescription plans – now at under $20 per month – to Medicare customers.

While a move into health care might seem unorthodox, it fits Walmart's various plays to dominate different aspects of the retail space. Already ubiquitous, with a network of stores within 10 miles of 90% of U.S. households, Walmart is the nation's largest grocer. And Toys R Us blamed Walmart, along with Amazon and Target, for delivering the final blow during the holiday season that drove the iconic toy seller to file for liquidation earlier this month.

Neil Saunders, managing director of retail consultancy Global Data, says that a tie-up with Humana presents "a potential opportunity for Walmart to bring some much-needed focus and discipline to the health insurance industry. However, on its own, this is too vague a notion to act as a catalyst for a deal; other things have to be in play to make the risks of any tie-up worthwhile.''

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