(Reuters) - U.S.
health insurer Centene Corp on Wednesday said it would buy smaller rival
WellCare Health Plans Inc for $15.27 billion in stock and cash, in a move to
bulk up its government-backed Medicare and Medicaid businesses while reducing
exposure to Obamacare healthcare exchanges.
Shares of WellCare
jumped 9.8 percent to $253.98. Centene shares fell about 7.5 percent to 50.71.
The announcement comes
days after the Trump administration stepped up its opposition to former
President Barack Obama’s signature healthcare law. The Department of Justice
(DOJ) on Monday said it believes the Affordable Care Act (ACA), popularly known
as Obamacare, violated the U.S. Constitution and that the law should be struck
down.
Centene relies on its
Obamacare business for about 40 percent of its earnings, making it among the
most vulnerable companies should the law be overturned, according to SVB
Leerink analyst Ana Gupte.
The combined company
will have 22 million members, up from around 14 million for Centene at the end
of 2018.
“The more we can grow
in this area, the better the recipients are, the better for the investors ...
And there are other very large competitors out there,” Centene Chief Executive
Michael Neidorff said on a conference call. Neidorff will remain CEO of the
combined company.
It will have a
Medicaid business in 22 states, covering more than 11 million lives, according
to Jefferies data. That represents a more than 50 percent increase for Centene.
Since the beginning of
2014, when Obamacare’s Medicaid expansion began taking effect on a significant
scale, shares of both companies have surged. Centene’s shares are up around 272
percent, while WellCare shares rose around 228 percent.
The two companies
Medicaid businesses currently have significant overlap in Illinois, Florida,
Georgia and Missouri, according to Jefferies.
The deal is expected
to close in the first half of 2020, the companies said. They forecast around
$500 million in cost savings from the deal in the second year after it closes.
Pharmaceutical tablets and capsules arranged in a picture
illustration. REUTERS/Srdjan Zivulovic
The deal, including
debt, was valued at $17.3 billion. The offer price of $305.39 per share
represents a premium of about 32 percent to WellCare’s closing price on
Tuesday.
Under its terms,
WellCare shareholders will get 3.38 shares of Centene common stock and $120 for
each WellCare share, giving them about 29 percent ownership of the new company.
Centene’s planned
acquisition of WellCare continues a wave of consolidation in U.S. healthcare,
coming after two large health insurers combined with the two largest U.S.
pharmacy benefit managers in deals that closed last year.
In those deals, CVS
Health Corp bought Aetna Inc for $69 billion, while Cigna Corp acquired Express
Scripts Holding Co for $54 billion.
Reporting
by Tamara Mathias in Bengaluru and Michael Erman in New York; Editing by Arun
Koyyur and Bill Berkrot
https://www.reuters.com/article/us-wellcare-m-a-centene-idUSKCN1R80XQ
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