Humana Inc Managing in a Changing Industry Case Solution

Case Solution

Intensifying competition and modify inside the U.S. health care industry pressure a substantial integrated health-care provider to mirror on its manner of operating both hospitals and medical insurance plans (HMO's). To ensure that they are able to increase its stock cost and operating performance, the business sights numerous alternative restructuring techniques for separating the two companies, plus a corporate spin off.

Excel Calculations

Performance Analysis

Comparison to Industry, Performance Trends of Humana

Valuation Based on Multiples

Competitor's Information, Valuation Based on EBITDA Multiple, Valuation Based on P/E Multiple

Discounted Cash Flow Analysis

Discounted Cash Flow Analysis, Discount Rate Calculation, Cost of Equity:Cost of Debt

WACC

Calculating Cash Flows (US $ Millions), Free Cash Flow to Firm 

Calculating Values of Humana's Business Segments, FCFF for Hospital

Terminal Growth Rate, Value of Hospital Segment, Value of HMO Segment

Questions Covered

How is Humana’s business doing? How their recent performance is compared to that of the industry? Do you think Humana’s problems are serious enough to warrant some form of restructuring?

What corporate structure would you recommend for Humana? 

Why would Humana benefit from engaging in a spin-off? Explain.

How much value do you estimate the spinoff would create for Humana? What are thesources of this additional value, and how should the spin-off be structured for Humana to realize maximum benefits from the restructuring?

Why has an integrated strategy apparently worked for Kaiser Permanente but not worked for Humana?

Do any of the other options considered by management represent a more sensible solution to Humana’s problems than the spin-off?