Humana Inc., Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Humana Inc., Case Solution

Introduction

Humana Incorporation is a well-known name of an integrated health care organization which was started in 1962 by David Jones and Wendell Cherry. The organization is focused at providing health care facilities along with the health plans across US, Switzerland etc. The company had a corporate culture that encourages innovation and change and allowed the company a rapid adaptation to changing industry dynamics and the external environmental forces. For its previous years, the company had experienced extensive growth rates and profit margins. However, the current market position of the company in terms of share prices is below the industry average. (Gillson, 1994)

The report contains an analysis of various restructuring options especially the corporate spin-off. It provides an analysis of the impact of spin-off over the total value of organization. Moreover, it provides an analysis of the various financial structures of hospitals and health plans as separate entities after spin-off. Moreover, what share price could be expected after the spin-off by the shareholders?

Problem Statement

Despite of a profitable business background along with a large experience in the field, the overall wealth of the shareholders of Humana is declining with a high rate with the organization facing all time low share prices. Along with it, an increased competition in US health care industry along with a change in industry structures force the management at Humana to raise concerns over changing the corporate structure of the organization. The management is concerned over the assessment of its integrated strategy and considering various alternative options of restricting the strategy including the corporate spin-off.

Restructuring Options

There are various restructuring options that could be considered by Humana to resolve the issues. These restructuring options include: modification in the current integrated strategy, change in the current price structure and corporate spin-off. The recommended restructuring option for Humana is the corporate spin-off. The major reason behind the consideration of spin-off as a strategic restructuring option is the high difference in the profitability of both of the business segments, with hospitals having a high profitability and the health plan segment having low profitability.

Moreover, as modifications in the current integrated strategy were unable to lead towards an increased profitability of the hospital plan business segment. It would not lead towards a potential increase in the organization’s value, which is the ultimate goal of Humana. Moreover, a change in price structure i.e. reducing the prices, might lead towards a further decline in the profit margins of the organizations, resulting in declination of the organization’s value.

In this regards, the best solution for Humana to increase its overall value is the corporate spin-off strategy. The DCF Valuation Conducted for the Spin-off strategy, given in the Exhibit 1, shows that the value of the company, without the consideration of spin-off strategy, would be $814 million as compared to the total value of the firm of $3643 million after the consideration of spin-off strategy. The option shows an increase of more than 300% in the total value of the firm.

The details about the DCF valuation of the spin-off strategy are provided in the next section.........................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Humana Inc., Harvard Case Solution & Analysis