Humana Inc. announced the mutual termination of its merger agreement with Aetna Inc., following a ruling from the United States District Court for the District of Columbia granting a United States Department of Justice request to enjoin the merger. Under the terms of the merger agreement, Humana is entitled to a breakup fee of $1 billion, or approximately $630 million, net of tax.

“The healthcare industry is in a dynamic state, and the public is looking to companies like Humana to improve the cost of care and the consumer experience,” said Bruce D. Broussard, Humana’s President and Chief Executive Officer. “As an independent company, we will continue to innovate and sharpen our focus on the local healthcare experience of all our members, especially seniors living with chronic conditions. Our strategy not only improves the value we bring to members, doctors and other healthcare professionals, but it also helps reduce costs and enhances the growth platform for both our health plans and our Healthcare Services businesses, thus positioning us well for long-term, sustainable growth.”

Broussard added, “We are very proud of the tremendous effort and commitment of our associates during this extended period of uncertainty and their continuing focus and dedication to helping our members achieve their best health.”

Strategic Update

As an independent company, Humana will continue to build upon its integrated care delivery strategy by intensifying its focus on people living with chronic conditions – particularly those aging into or already in Medicare Advantage or dual eligible plans. This population is fast-growing, with greater than 85 percent of seniors having at least one chronic condition and 65 percent having multiple chronic conditions. To further advance this strategy, the company will maintain its employer group customer focus, continuing to establish relationships with Medicare age-ins, while leveraging its clinical and operating platforms and furthering partnerships with doctors and other healthcare professionals. This brings value-added capabilities to the company’s employer group customers, particularly small to mid-size employers.

As the company’s business model demonstrates, when Humana integrates care with doctors and other healthcare professionals and serves members outside of traditional institutions, its members’ health improves, care is more cost-effective, and consumers are more engaged. These are key drivers to enabling more affordable healthcare for consumers and facilitating higher Star quality ratings, while also improving financial performance.

Humana is enhancing its integrated care delivery strategy in several key areas to further enable a rich, locally delivered healthcare experience for members, by doing the following:

• Increasing risk-based arrangements through expanding partnerships with risk providers, offering sophisticated population health technology and services, and expanding primary care clinics.

• Expanding complementary clinical capabilities that assist members outside of the doctors’ offices and institutions, with focus on home health services, local pharmacy access and behavioral health.

• Integrating technology between healthcare professionals, members and Humana together with advanced analytics to simplify the experience, eliminate “friction points”, increase transparency and make access to care more convenient.

“By extending and expanding the local capabilities of our Healthcare Services businesses and supporting doctors and other healthcare professionals with innovative and unsurpassed population-health tools, we believe we can remove barriers for our members. This will help them achieve their best health by enabling a more simplified healthcare experience – one that combines the lifestyles of our members and the clinical aspects so critical to improving lifelong health and well-being,” said Broussard. “We believe this will, in turn, continue to drive growth across the enterprise and favorable returns for our stockholders.”

The company will continue its practice of evaluating its portfolio of businesses to ensure focus on those lines of business where its integrated care delivery strategy can add value for health plan members, healthcare professionals and its government program and employer group customers.

Regarding the company’s individual commercial medical coverage (Individual Commercial), substantially all of which is offered on-exchange through the federal Marketplaces, Humana has worked over the past several years to address market and programmatic challenges in order to keep coverage options available wherever it could offer a viable product. This has included pursuing business changes, such as modifying networks, restructuring product offerings, reducing the company’s geographic footprint and increasing premiums.

All of these actions were taken with the expectation that the company’s Individual Commercial business would stabilize to the point where the company could continue to participate in the program. However, based on its initial analysis of data associated with the company’s healthcare exchange membership following the 2017 open enrollment period, Humana is seeing further signs of an unbalanced risk pool. Therefore, the company has decided that it cannot continue to offer this coverage for 2018. Through the remainder of 2017, Humana remains committed to serving its current members across 11 states where it offers Individual Commercial products. And, as it has done in the past, Humana will work closely with its state partners as it navigates this process.

Capital Deployment Plans

The company today also announced strategic changes to its capital deployment plans to increase its return of capital to stockholders and to create capacity for strategic investments.

• The company’s Board of Directors has declared a cash dividend to stockholders of $0.40 per share, payable on April 28, 2017, to stockholders of record on March 31, 2017, an increase of 38 percent from the prior quarter’s cash dividend of $0.29 per share.

• Humana anticipates share repurchases totaling at least $2.00 billion in 2017, to be accomplished through a variety of means, including a $1.50 billion accelerated share repurchase program in the first quarter of 2017, and open-market repurchases, with at least $500 million in additional share repurchases through the remainder of the year, subject to market conditions. To that end, the company’s Board of Directors has approved a new share repurchase authorization in the aggregate amount of $2.25 billion, expiring December 31, 2017.

• The company remains committed to a solid balance sheet and an investment grade rating, which provide the capacity and flexibility to invest in growth opportunities. Humana is likely to access the capital markets in the coming months, depending upon market conditions, raising its debt-to-capital ratio to within the range of 30 to 35 percent. The higher debt-to-capital ratio has been anticipated in the company’s financial guidance for the year ending December 31, 2017 (FY17). The company also noted that it would consider going above that range, temporarily, if needed for strategic purposes.

Investor Day 2017

Humana also announced its intention to host an Investor Day in New York, NY on April 25, 2017, where it will provide more detail on the company’s strategic actions and its financial prospects. Specific details for that event will be announced at a later date.

2017 Financial Guidance

Humana provided its Generally Accepted Accounting Principles and Adjusted EPS guidance for FY17 as detailed below. GAAP and Adjusted results for the year ended December 31, 2016 (FY16) are shown below for comparison. Adjusted FY16 results have been recast to exclude the Individual Commercial business given the company’s decision to no longer offer these products beginning in 2018, as discussed above.

“Our results for 2016 demonstrated Humana’s ability to maintain operational discipline and advance our strategy during periods of uncertainty and change,” said Brian A. Kane, Senior Vice President and Chief Financial Officer for Humana. “As we head into 2017, this experience increases our confidence that we will continue to drive increased consistency and sustainability of earnings, as well as top and bottom line growth.”

Factors expected to impact the company’s projected FY17 earnings growth include: