LOUISVILLE, Ky. (WDRB) -- The board of Louisville-based Humana Inc. wants to make it easier for the company to be sold to — or to merge with — another large company.
Humana, a Fortune 50 health insurer, once agreed to be taken over by rival Aetna in 2015 and has reportedly flirted with other corporate tie-ups over the last decade. Most recently, Humana was said to be discussing a merger with health insurer Cigna Group late last year before talks fizzled.
Now there’s a new sign that the largest corporation headquartered in Kentucky may be interested in selling: a proposed change to the company’s corporate charter.
Humana’s board of directors wants to get rid of language that risks complicating a sale or merger with another large publicly traded company, according to the company’s annual proxy statement filed Feb. 22.
Under Humana's current charter, a deal with another company may require 75% approval from Humana’s stockholders, rather than the more customary simple majority.
The higher bar to approve a sale or merger "could potentially impede Humana’s ability to execute transactions with peer companies in the future," Humana’s board of directors said in the filing.
For example, another large company might "bypass" a deal with Humana "and instead transact with a different company that does not maintain the provision, thereby depriving Humana and its stockholders of a transaction opportunity," the board said in the filing.
None of its health industry peer companies have such a threshold, Humana said.
A Humana spokesman declined to comment.
Sale interest or housekeeping?
Whether Humana’s board is entertaining another sale or merger of the company — or simply taking care of a housekeeping item — is hard to know, according to corporate governance experts.
"All the company has done is disclose that, based on their governance responsibilities, the board looks at these potential opportunities pretty seriously," said Justin Klein, director of the Weinberg Center for Corporate Governance at the University of Delaware. "And if the company were to enter into a transaction, it would be less troublesome to achieve 50% shareholder approval as opposed to a supermajority."
Manning Warren, a University of Louisville professor emeritus in corporate and securities law, said the proposal "might infer an existing acquisition negotiation but almost certainly evidences a current interest on the part of (Humana) management in potential acquisitions that might bolster the company’s value."
Humana has long been thought of as a takeover target. It specializes in Medicare Advantage, the fastest growing part of the health insurance industry.
Last year, the company announced it would no longer offer employer-based insurance, cementing its reliance on its Medicare franchise, which makes up about 80% of Humana’s roughly $100 billion in annual revenues.
Humana’s Medicare niche was the rationale for Aetna’s pursuit of the company in 2015. Aetna was set to purchase Humana in a cash-and-stock deal until a federal judge blocked the transaction on antitrust grounds in 2017.
In November, Humana and rival insurer Cigna — which is commercially focused and has little foothold in Medicare — started talking about a combination, but those talks fizzled in December, according to The Wall Street Journal.
Humana CEO Bruce Broussard, who plans to step down this year after more than a decade leading the firm, told investment analysts in January that the company will always do what’s best for shareholders. But Broussard implied that the company wasn’t currently pursuing a sale.
"We do believe today being a specialty player in the fastest growing part of the industry is the best value for the shareholders," Broussard said.
Anti-takeover provisions
The supermajority threshold for approving a sale of the company would be triggered if Humana and its merger partner have one common shareholder owning at least 5% of both companies’ outstanding shares, Humana said the proxy. Humana noted that large asset managers like Vanguard and BlackRock own significant chunks of its stock and that of most other large, publicly traded firms.
The supermajority threshold is a "classic anti-takeover defense" that many public companies adopted in the 1970s and 1980s to protect themselves against corporate raiders, Klein said.
Warren pointed to academic research showing that, as companies mature and their founders are no longer at the helm, the costs of maintaining anti-takeover defenses begin to outweigh the benefits.
Humana has apparently concluded that the company’s current charter "has disincentivized potential suitors and has also lowered demand for its shares" if investors think a takeover deal is less likely, Warren said.
Even as an independent company, Humana’s connection to Louisville has weakened in recent years, as WDRB documented in 2022. The company has greatly reduced its office footprint in downtown Louisville while establishing an executive office near Washington.
Earlier this month, the company delivered a psychological blow to Louisville, announcing it plans to vacate its 40-year-old, 27-story granite headquarters building in the center of downtown.
