Humana to Buy Emphesys for $650 Million

DE PERE, Wis. —  Humana Inc., one of the nation’s biggest health maintenance organizations, said Thursday that it will acquire Emphesys Financial Group Inc. for $650 million in cash.

Emphesys is the country’s 10th-largest group health insurer. Through its De Pere-based Employers Health Insurance Co., the company provides medical and life insurance for 1.3 million people in 46 states.

“Emphesys fits perfectly with our strategic plan to grow in existing markets and to expand into attractive new markets,” said Wayne T. Smith, Humana’s president and chief operating officer.

Emphesys’ shares jumped $8.875 to $36.25 on the New York Stock Exchange. Humana’s shares rose 25 cents to $18.50.

The deal is the latest merger in the health insurance industry, where companies are scrambling to preserve profits by teaming up because businesses are increasingly turning to lower-cost managed care programs like HMOs.

Companies use HMOs to give employees comprehensive health care for a flat fee and cut costs by limiting choices of doctors.

The marketplace is moving in the direction of managed care, yet consumers don’t want to give up choice, which is a weakness of HMOs, analysts said.

Humana will likely seek to convert Emphesys’ customers to HMOs, said John Kreger, an analyst with Vector Securities International.

The merger gives employers “the ability to contract with one managed care company but still offer a whole host of products to employees,” said Kreger.

Humana, headquartered in Louisville, Ky., provides managed health care services to 2.4 million members through HMOs and preferred provider organizations in 14 states and the District of Columbia.

PPOs are networks of doctors who agree to accept lower fees for each service in exchange for a steady source of new patients.

Humana’s acquisition will give it annual premiums of $5.6 billion, the company said. It will pay $37.50 for each outstanding share of Emphesys common stock under the proposed transaction, which has been approved by Emphesys’ board of directors.

The deal, which needs regulatory approval, is expected to be completed by the fall.