Modern
Healthcare March 27, 2019
Centene Corp. on Wednesday said it will buy
fellow Medicaid insurer WellCare Health Plans in an estimated $17.3 billion
deal.
All in all, the two insurers would cover nearly
22 million people in Medicare, Medicaid and the ACA exchanges. Centene CEO
Michael Neidorff will serve as chairman and CEO of the merged company.
"With the addition of WellCare, we expect
to bolster and diversify our product offerings, increase our scale and have
access to new markets, which will in turn, enable us to continue investing in
technology and better serve members with innovative programs designed to meet
their needs," Neidorff said in a statement.
Combined, the merged company would boast $80.5
billion in revenue and $1.3 billion in net income. It would include more than
12 million Medicaid beneficiaries and almost 1 million Medicare members, along
with a Medicare prescription drug plan WellCare is acquiring from Aetna. The
insurer's rolls will also be bolstered by Centene's recent Medicaid contract
win in North Carolina. The company's joint venture with the North Carolina
Medical Society, Carolina Complete Health, scored a contract to serve Medicaid beneficiaries in
two regions in North Carolina starting in 2020. Centene had been gunning for a
statewide contract.
Centene saw its ACA exchange membership swell to almost 2 million during the latest open
enrollment, giving it about a 20% market share across the country. WellCare's
recent growth focused on Medicaid, where it has million members, thanks in
large part to its $2.5 billion acquisition of Meridian Health Plan that
closed in September.
The news comes just days after the Justice Department changed course and told the 5th
U.S. Circuit Court of Appeals that it supported striking down the entire
Affordable Care Act. Previously, the federal government had supported a partial
repeal.
Centene's shareholders would own 71% of the
merged insurer and its board would fill nine of the 11 board seats after its
projected close in the first half of 2020.
Centene will pay 3.38 shares of its stock and
$120 in cash for each share of WellCare stock, or $305.39 per WellCare share.
That's equates to a 32% premium to WellCare's Tuesday closing stock price.
WellCare's stock price bumped up 14% before
market open while Centene's stock took a 5% dip.
The merger announcement did not surprise equity
analysts. In a research note, Leerink Parnters analyst Ana Gupte wrote that the
move would allow Centene to drive margin expansion and accelerate its slowing
growth, while diversifying itself at a time when the ACA is at risk.
WellCare shareholders may be less keen to
approve the deal, she wrote, given the Tampa, Fla.-based health plan's better
growth path. She estimated the deal has about a 60% likelihood of being
approved by antitrust regulators, but would require divestitures in Florida and
Georgia where the two insurers have overlapping business.
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