Boards Ok Billion Dollar Health Insurance Merger

The boards of Centene Corporation and WellCare Health Plans, Inc., two health insurance companies, have unanimously approved a merger agreement and filed a joint proxy statement with the U.S. Securities and Exchange Commission (SEC).

The total value of the deal: $17.3 billion

The number of patients affected in the United States: 22 million

American Hospital Association View: Stop this merger!

Estimated closing: Early 2020.

According to the proxy filing, post-merger WellCare will become a wholly owned subsidiary of Centene. Assuming the deal passes anti-trust muster, WellCare stockholders could receive $120.00 in cash and 3.38 shares of Centene common stock for each share of WellCare common stock that they own. Former WellCare stockholders will then own approximately 29% of the then outstanding Centene common stock.

Based on Centene’s closing stock price on May 22, 2019, the last trading day before the date of this joint proxy statement/prospectus, the implied merger consideration was $311.92—a premium of approximately 34.9% over WellCare’s closing stock price on March 26, 2019, the last trading day before the public announcement of the merger agreement.

Centene initially announced its plans to purchase WellCare for more than $15 billion. The deal was intended to expand Centene’s business of administering Medicaid benefits for poor Americans and providing private Medicare Advantage coverage.

Centene’s acquisition of WellCare would create a large player in government-sponsored healthcare arena. The deal would allow it to bulk up its government-backed Medicare and Medicaid businesses and reduce its exposure to Obamacare healthcare exchanges.

The American Hospital Association (AHA) is aggressively lobbying the Trump administration to block Centene’s acquisition of WellCare Health Plans. WellCare, the fourth-largest provider of Medicaid managed-care plans if merged with Centene’s more than 2 million exchange members would reduce competition in Medicaid managed-care and Medicare Advantage services, says the AHA.

Earlier this month, Reuters reported that Corvex Management LP and Sachem Head Capital Management LP, hedge funds that have stakes in Centene Corporation, were considering challenging its acquisition of WellCare. The challenge was based on the hedge funds’ belief that Humana Inc might be interested in acquiring Centene.

Following the report, Centene Chairman and CEO Michael Neidorff wrote a letter stating, “We remain as committed to our combination with WellCare today as we did when we announced it on March 27th.”

Centene and WellCare Health Plans have set a date of June 24th for shareholders to approve of their merger.