Humana 2015 Annual Report Download - page 49

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Executive Overview
General
Humana Inc., headquartered in Louisville, Kentucky, is a leading health and well-being company focused on
making it easy for people to achieve their best health with clinical excellence through coordinated care. Our strategy
integrates care delivery, the member experience, and clinical and consumer insights to encourage engagement, behavior
change, proactive clinical outreach and wellness for the millions of people we serve across the country.
Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by taking
total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting
profitability. The operating cost ratio, which is computed by taking total operating costs, excluding depreciation and
amortization, as a percentage of total revenue less investment income, represents a statistic used to measure
administrative spending efficiency.
Aetna Merger
On July 2, 2015, we entered into an Agreement and Plan of Merger, which we refer to in this report as the Merger
Agreement, with Aetna Inc. and certain wholly owned subsidiaries of Aetna Inc., which we refer to collectively as
Aetna, which sets forth the terms and conditions under which we will merge with, and become a wholly owned subsidiary
of Aetna, a transaction we refer to in this report as the Merger. A copy of the Merger Agreement was filed as Exhibit
2.1 to our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 7, 2015. Under
the terms of the Merger Agreement, at the closing of the Merger, each outstanding share of our common stock will be
converted into the right to receive (i) 0.8375 of a share of Aetna common stock and (ii) $125 in cash. The total transaction
was estimated at approximately $37 billion including the assumption of Humana debt, based on the closing price of
Aetna common shares on July 2, 2015. The Merger Agreement includes customary restrictions on the conduct of our
business prior to the completion of the Merger, generally requiring us to conduct our business in the ordinary course
and subjecting us to a variety of customary specified limitations absent Aetna’s prior written consent, including, for
example, limitations on dividends (we agreed that our quarterly dividend will not exceed $0.29 per share) and repurchases
of our securities (we agreed to suspend our share repurchase program), restrictions on our ability to enter into material
contracts, and negotiated thresholds for capital expenditures, capital contributions, acquisitions and divestitures of
businesses.
On October 19, 2015, our stockholders approved the adoption of the Merger Agreement at a special stockholder
meeting. Of the 129,240,721 shares voting at the meeting, more than 99% voted in favor of the adoption of the Merger
Agreement, which represented approximately 87% of our total outstanding shares of common stock as of the September
16, 2015 record date. Also on October 19, 2015, the holders of Aetna outstanding shares approved the issuance of Aetna
common stock in the Merger at a special meeting of Aetna shareholders.
The Merger is subject to customary closing conditions, including, among other things, (i) the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the receipt of necessary approvals under state insurance and healthcare laws and regulations and pursuant
to certain licenses of certain of Humana’s subsidiaries, (ii) the absence of legal restraints and prohibitions on the
consummation of the Merger, (iii) listing of the Aetna common stock to be issued in the Merger on the New York Stock
Exchange, (iv) subject to the relevant standards set forth in the Merger Agreement, the accuracy of the representations
and warranties made by each party, (v) material compliance by each party with its covenants in the Merger Agreement,
and (vi) no “Company Material Adverse Effect” with respect to us and no “Parent Material Adverse Effect” with respect
to Aetna, in each case since the execution of and as defined in the Merger Agreement. In addition, Aetna’s obligation
to consummate the Merger is subject to (a) the condition that the required regulatory approvals do not impose any
condition that, individually or in the aggregate, would reasonably be expected to have a “Regulatory Material Adverse
Effect” (as such term is defined in the Merger Agreement), and (b) CMS has not imposed any sanctions with respect