The sleepy Managed Care sector woke up to a big deal last week. Centene Corporation (NYSE: CNC) announced it will acquired WellCare Health Plans (NYSE: WCG) for approximately $17.4 billion.
M&A among managed care companies has been dormant since 2015. That’s when, in June, the U.S. Supreme Court upheld the tax subsidies provided as part of the Affordable Care Act. Forty-four deals were announced that year, not including the two mega-mergers between Aetna (NYSE: AET) and Humana (NYSE: HUM) for $37 billion and between Anthem (NYSE: ANTM) and Cigna (NYSE: CI) for $54 billion. Since the U.S. Department of Justice (DOJ) successfully challenged those mergers in 2017, they’ve been removed from our data.
Since then, annual deal volume in the sector fell back to its pre-2015 levels of 20-something announcements per year. This data is from our freshly published “2019 Health Care Services Acquisition Report, Twenty-Fifth Edition.”
The Latest Deal
The deal brings together two companies known for their government-sponsored managed care services. WellCare serves approximately 5.5 million members primarily through Medicaid, Medicare Advantage and Medicare Prescription Drug Plans.
Centene is a multi-national healthcare company with approximately 17 million members. It provides a portfolio of services to govenment-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals.
Centene will pay $305.39 per share in cash and stock (0.85x revenue and 18.9x EBITDA). WellCare shareholders will receive 3.38 shares of CNC common stock and $120 in cash for each share of WellCare common stock. The price includes Centene’s assumption of $2.13 billion in WCG debt. The price per share represents an approximately 32.1% premium based on the closing stock price of WellCare on March 26, 2019.
The combined company will have approximately 22 million members across all 50 states and have estimated pro forma 2019 revenues of approxiatmely $97 billion, and $5 billio nof EBITDA. Its headquarters will be located in Centene’s home town of St. Louis, Missouri and Centene CEO Michael Neidorff will lead the new entity.
When the deal closes, loosely targeted to the first half of 2020, Centene shareholders will own 71% and WellCare shareholders will own 29% of the combined company.
This transaction has yet to be approved by shareholders in either company, nor has it gotten the blessing of the DOJ’s Federal Trade Commission. Considering the DOJ was instructed this week to do an about-face and seek the ACA’s repeal (again), we’re not betting on anything.
