Walmart’s potential deal with insurer Humana

Amazon’s (AMZN) foray into the healthcare sector has been considered as a disruptive threat by healthcare companies. There is no denying that the retail giant is already changing the healthcare space as the mere thought of Amazon in the healthcare industry has left insurers, drug store chains and retailers frantically circling to ensure that they are not left out in the frenzy of deal-making. This has promoted the giant discount retailer Walmart (WMT) and Humana (HUM) – the longtime partners- to deepen their partnership, a move to counter the top rivals.

According to the reports by Wall Street Journal, both Walmart and health insurance giant Humana have had initial discussions focusing on deepening their existing partnership, or even an outright merger. However, both the companies are yet to confirm these reports.

Healthcare deals have been on a rise. After the drug store chain CVS Health (CVS) swallowed pharmacy benefits manager [PBM] Aetna (AET), there has been a major transformation in the healthcare business. This $77 billion deal triggered another deal between Cigna (CI) and Express Scripts (ESRX) – valued at $67 billion.

Ever since the Department of Justice scrapped two huge deals last year in the health insurance industry – Anthem’s (ANTM) acquisition of Cigna and Aetna’s merger with Humana- due to antitrust concerns, the insurance firms have been compelled to approach companies from other industries in order to grow and sustain in the rapidly changing healthcare space.

This competition could further intensify if the giant corporate titans — Amazon, Berkshire Hathway (BRK.A) and JPMorgan Chase (JPM) — team up in a joint venture and start an insurance company for their employees. The deal that is still in the pipeline has sent waves of fear and panic to other healthcare players.

If Walmart and Humana’s deal goes through, it would be another major deal. Humana is one of the largest PBMs and currently has a market value of about $37 billion. Walmart – a retailer giant which also operates drugstores is said to have a market value of about $260 billion. When the market opened today, Humana’s shares surged 7%, while Walmart inched down 1%.

Humana is known to have the second largest Medicare presence. Ever since the deal with Aetna failed, Humana has been eyeing for a deal to expand its business. And Walmart has been aggressively working towards increasing the in-store footprints and promoting its in-store clinics. This deal might help to bring in more people to the stores and buy drugs. With Humana, Walmart can boost its store visits and could bring in physician clinics in stores and offer medical care services to its customers. In a way, this is a win-win game for both companies.