A.M. Best Comments on Humana's Proposed Acquisition of CarePlus Health Plans.OLDWICK, N.J. -- On December 14, 2004, Humana Inc. (Humana) (NYSE NYSE See: New York Stock Exchange :HUM) (Louisville, KY) announced its intention to acquire CarePlus Health Plans, Inc. (Tampa, FL). A.M. Best Co. views this announcement favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. . Humana's existing debt, shelf and financial strength ratings remain unaffected. The rating outlook remains stable for all debt and the majority of financial strength ratings. The proposed acquisition would strengthen Humana's existing Medicare Advantage presence in South Florida's Miami-Dade, Broward and Palm Beach counties. The transaction is consistent with Humana's near-term expansion strategy to establish a foothold foot·hold n. 1. A place providing support for the foot in climbing or standing. 2. A firm or secure position that provides a base for further advancement. foothold Noun 1. in Medicare markets with attractive revenue and earnings growth opportunities. Upon completion, the deal is expected to generate near-term cost synergies Cost Synergy In the context of mergers, cost synergy is the savings in operating costs expected after two companies, who compliment each other's strengths, join. Notes: The savings in operating costs usually come in the form of laying off employees. , strengthen corporate earnings and add approximately 50,000 members to Humana's Medicare Advantage enrollment. Furthermore, the transaction could bolster Humana's presence with southern Florida's Hispanic population, facilitating its commercial segment expansion. Humana will finance the $408 million transaction with cash and bank debt. During the near term, debt financing Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay will increase Humana's financial leverage to approximately 30%: the high-end of the acceptable range for its debt ratings. Humana's medium-term intention is to reduce leverage to 25% by year-end 2005 through cash earnings and subsidiary dividends. The corporation's prospects continue to be driven by its government business, despite a recent upward revision to Humana's commercial segment earnings forecast. As a result, the firm is still very dependent upon its government business for profitability and debt service coverage. For current Best's Ratings Best's rating A rating A.M. Best Co. assigns to insurance companies based on the company's ability to meet its obligations to its policyholders. , independent data and analysis on more than 1,050 health companies and more than 130 HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, industry composites, please visit http://www.ambest.com/health/. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com. |
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