Centene To Buy Rival WellCare in Deal Worth More than $17B

Centene Corporation announced its plan to buy its smaller rival WellCare Health Plans Inc for a reported $15.27 billion.  The Clayton-based health insurance giant said this cash-and-stock deal is intended to help shore up its government-backed health care plans.   With this announcement, then, shares of WellCare jumped about 23 percent, trading up 12.5 percent—at $260.28—late in the day.  Centene shares, however, lost about 7 percent value before Wednesday’s final bell. 

All of this should reduce Centene’s dependence on the ACA health care exchange at a time when the President Donald Trump—and his administration—have stepped up their attack on the signature health care legislation.  Indeed, earlier this week, the United States Department of Justice reported their backing of a federal judge’s ruling that the Affordable Care Act—aka, “Obamacare”—in fact, violates the US Constitution because it require people to buy health insurance. 

Centene, of course, relies on Obamacare to generate roughly 40 percent of its earnings. And this facet makes it vulnerable to any DoJ decision that could change or repeal the law. Thus, the WellCare deal will allow for Centene to compete more evenly against the larger rivals on the exchange like UnitedHealth Group Inc and CVS Health Corporation following a massive consolidation effort that involved much of the US health sector. 

You may recall that the pharmacy benefits manger CVS Health Corp was finally able to close its $69 billion acquisition of Aetna Inc, last year.  At the same time, Cigna Corporation also managed to close its $54 billion acquisition of St Louis-based pharmacy benefits manager Express Scripts Holding, Co. 

That said, the Centene deal is expected to close in early 2020, allowing it to grow its Medicaid business throughout the rest of the year. It will also help the company to cut costs and expand its coverage of Medicare Advantage, a segment of the company that is still quite small. 

At the end of the day, the deal—accounting for debt—has a value of $17.3 billion with an offer price of $305.39 per share. This represents a premium of approximately 32 percent on WellCare’s Tuesday closing price. For this, WellCare shareholders will receive 3.38 shares of Centene common stock as well as $120 cash for each WellCare share; the equivalent of nearly 30 percent ownership of the new, joint company.