Humana, CVS Circle Cano Health as Potential Buyers

Humana Inc.

HUM 0.67%

and CVS Health corp.

CVS 0.06%

are circling Cano Health Inc.,

CANO 32.17%

according to people familiar with the situation, as healthcare heavyweights scramble to snap up primary-care providers.

The talks are serious and a deal to purchase Cano could be struck in the next several weeks, assuming the negotiations don’t fall apart, some of the people said. Cano shares, which had been down nearly 7%, turned positive and closed up 32% after The Wall Street Journal reported on the talks with Humana and other unnamed parties, giving the company a market value of roughly $4 billion.

Bloomberg subsequently reported CVS’s interest.

It could not be learned which other potential buyers might be in the mix, but Cano could be Humana’s to lose as the health insurer has a right of first refusal on any sale, part of an agreement that was originally struck in 2019.

Miami-based Cano operates primary-care centers in California, Florida, Nevada, New Mexico, Texas, Illinois, New York, New Jersey and Puerto Rico, according to documentation from the company. It mainly serves Medicare Advantage members, a private-sector alternative to Medicare for seniors.

Ties between the companies run deep: Cano was Humana’s biggest independent primary-care provider in Florida, serving over 68,000 of its Medicare Advantage members at the end of last year, according to a securities filing. Cano also operated 11 medical centers in Texas and Nevada for which Humana is the exclusive health plan for Medicare Advantage, the filing added.

Humana has already established a footprint in primary care, which it continues to expand. Earlier this year, its CenterWell Senior Primary Care business joined with private-equity firm Welsh, Carson, Anderson & Stowe to open about 100 new senior-focused primary-care clinics between 2023 and 2025, building on an earlier, similar partnership.

At its investor day last week, Humana’s chief executive, Bruce Broussard, said that the company sees a total addressable market of over $700 billion in “value-based” primary care for seniors. He noted that Humana has accelerated its investment in the sector over the past five years, becoming the nation’s largest senior-focused primary care provider.

There has been a frenzy of deal making involving large companies scooping up primary-care assets as a means of getting closer to patients and providing them more personal service. Amazon.com Inc.

agreed to purchase the parent of primary-care clinic operator One Medical for about $3.9 billion in July, while CVS Health Corp. agreed to buy Signify Health Inc.

for $8 billion earlier this month.

Cano went public in 2020 through a special-purpose acquisition vehicle backed by real-estate investor Barry Sternlicht, who sits on its board. The deal valued the company at $4.4 billion.

Cano has been the target of two shareholder activists this year, both of which independently pushed for its sale. Dan Loeb’s Third Point LLC currently has a roughly 5% stake in the healthcare company. In March, he pointed to the market’s unfavorable view of companies that went public through SPACs as a reason to explore strategic alternatives.

Then in late August, Owl Creek Asset Management LP sent a letter to Cano’s board stating that it had amassed a roughly 4% stake and urged the company to hire investment bankers to explore a sale to a strategic buyer.

Cano has been backed by health-care-focused private-equity firm InTandem Capital Partners since 2016. The firm mainly makes investments in small-to-midsize companies.

Write to Laura Cooper at laura.cooper@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

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Appeared in the September 23, 2022, print edition as ‘Humana, CVS Target Cano Health.’

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