Humana Inc.: Managing in a Changing Industry

Abstract

SUBJECT AREAS: Corporate restructuring; spinoffs; valuation. CASE SETTING: 1992, Health Care Industry. Intensifying competition and change in the U.S. health care industry force a large integrated health care provider to reassess its strategy of operating both hospitals and health insurance plans (HMOs). In an attempt to increase its stock price and operating performance, the company considers a number of restructuring strategies for separating the two businesses, including a corporate spinoff. Alternative options include issuing targeted stock, selling assets, establishing an ESOP, doing a leveraged buyout, and repurchasing stock. The case illustrates how a company under financial stress can use a corporate spinoff to increase its stock market value and effect real improvements in its business. The case also highlights the importance of choosing a financial restructuring strategy to fit the firm's underlying business or strategic problems. I have used the case in a second year elective MBA course on Corporate Restructuring, and in various executive programs taught at the School. The case could also easily be used in an undergraduate course in Finance, since the case is quite friendly on a technical level. Depending on his/her preference, the instructor can use the case to highlight different things, including policy issues in the U.S. healthcare industry, valuation of a company undergoing a corporate restructuring, and choice of restructuring method by a company that is undervalued or underperforming.