May 29, 2015 / 9:35 PM / 2 years ago

UPDATE 3-Health insurer Humana explores sale - source

(Adds analyst comment and strategic rationale)

By Greg Roumeliotis and Olivia Oran

May 29 (Reuters) - Humana Inc is considering selling itself after receiving multiple expressions of takeover interest, a person familiar with the matter said on Friday, highlighting the widening consolidation in the U.S. health insurance industry.

Humana is working with investment bank Goldman Sachs Group Inc on the potential sale, the person said, asking not to be identified because the matter is confidential.

The Wall Street Journal first reported on the sale process and said competitors Aetna Inc and Cigna Corp are among those that have held preliminary merger discussions with Humana.

Humana, whose shares closed 20 percent higher on the news, could not be reached for comment. Goldman Sachs, Cigna and Aetna declined to comment.

Humana has missed analyst expectations for financial results several times in the past year, and its business of providing individual insurance on the Obamacare exchanges has struggled.

Some of the company’s shareholders had privately called on the company in recent months to explore a sale, people familiar with the matter said this week. They asked not to be identified because those discussions were confidential.

Being part of a bigger company could help Humana’s flagship Medicare Advantage health insurance and individual insurance businesses if it negotiates better contracts with doctors and creates more competitively structured networks of providers, said Leerink Partners analyst Ana Gupte.

Its sale may trigger consolidation that shrinks the number of large publicly traded health insurers from five down to three, she said, explaining “It’s a huge push for scale.”

Executives from Aetna and Anthem Inc have said in recent weeks they are interested in doing large deals. Analysts said on Friday that Anthem may also look at Humana.

The government has pressured health insurers to cut costs with the new Obamacare exchange plans and in Medicare while employers have also gotten tough on spending for medical procedures and drugs.

Humana’s top shareholders include Glenview Capital Management, which in 2013 pushed for change at hospital operator Health Management Associates Inc.

The Justice Department, which reviews insurance mergers, will scrutinize any possible deal city-by-city to see if the combination would have a monopoly in any metropolitan area, said Andre Barlow, a veteran of the Justice Department now at Washington law firm Doyle, Barlow and Mazard PLLC.

“Humana is going to be selling itself to another mega player and the antitrust division has shown itself to be interested in scrutinizing mega mergers. The deal could be met with some resistance,” said Barlow. (Additional reporting by Diane Bartz in Washington, D.C. and Caroline Humer in New York; editing by Richard Chang)

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