The proposed deal involving Kindred and Humana announced this week would merge two Louisville-based Fortune 500 companies. Health insurance provider Humana will buy home health provider Kindred for $4.1 billion. Humana employs 12,000 workers while Kindred employs 2,300 workers.
Fortune magazine’s 500 list ranks companies by total revenue for the fiscal year. The list has been around for more than six decades. Chris Bollinger, an economist at the University of Kentucky, said he knows at least one reason: because people love them.
“Dave Letterman made a career of top 10 lists of things that ‘who cared about’ but people loved it,” said Bollinger.
Bollinger said companies on the list have a large footprint in the economy in terms of employment and market activity. “Fortune 500 companies, in many ways, they’re sort of stalwarts. They’ve already become established,” he said.
However, economic growth — and in particular, employment growth — comes from younger, newer companies. According to Bollinger, the number of Fortune 500 companies in a city doesn’t really matter when it comes to attracting more businesses.
“If two Fortune 500 companies merge like that, it’s not really a loss for Louisville,” he said.
He said the focus should be more on how health care services are provided as well as employment. “What types of jobs will be reduced and what kind of jobs will grow? Because I think you’ll see a lot of both,” he said.
Bollinger said businesses are less concerned about how many Fortune 500 companies are in a city and more about what will make them profitable. He said companies think along the lines of, “Where can we save money, where can we get better revenues, where can we get better workers, where can we get the kinds of things that make our company do better? Make more money, sell more products — those kinds of things.”
But agglomeration economies exist as well. “It can actually be useful to locate your firm near other firms of the same type because you share then a resource pool — often of workers,” said Bollinger.
The number of Fortune 500 companies in Louisville may not be significant. The good news for Louisville, said Bollinger, is that if the merger is approved, the new Humana-Kindred entity will still be based here.
Disclosure: Kindred Vice President Susan Moss is a Louisville Public Media Board Member.