This morning managed care companies Centene (CNC
50.30, -4.55, -8.30%) and WellCare (WCG 252.26, +20.99,
+9.08%) announced a deal whereby Centene would acquire WellCare in a cash and
Per the terms, Centene will acquire WellCare for $305.39 per share for a total enterprise value of $17.3 bln, a price which is not contingent on financing, in a combination that’s expected to be completed in the first half of 2020. Specifically, WellCare shareholders will receive a fixed exchange ratio of 3.38 shares of Centene common stock and $120 in cash for each share of WellCare common stock. The cash and stock consideration represents an approximately 21.0% premium to WellCare shareholders based on the 30-day volume weighted average closing stock price (VWAP) of WellCare prior to signing and an approximately 32.1% premium based on the closing stock price of WellCare on March 26, 2019.
The deal, which has been unanimously approved by the Boards of both companies, will create a healthcare enterprise focused on government-sponsored healthcare programs and a leader in Medicaid, Medicare and the Health Insurance Marketplace. The combined enterprise would have approximately 22 mln members across all 50 states in the U.S. The enterprise would also be expected to have estimated pro forma 2019 revenues of approximately $97 bln and $5 bln in EBITDA, based on the most recent 2019 outlooks publicly reported by both companies.
As is often the case, the combined enterprise sees some cost savings coming out of the deal. Specifically, the combination is expected to generate approximately $500 mln of annual net cost synergies by year two, driven primarily by the ability to capitalize on economies of scale in pharmacy and other medical cost management, leveraging WellCare's Medicare capabilities across markets, optimizing capabilities in IT systems and process management, as well as increased efficiencies in G&A.
In terms of management make up, the board of the combined company will consist of 11 members, nine of whom will be from the board of Centene and two of whom will be from the board of WellCare. After the close of the transaction, Michael Neidorff will lead the combined company as Chairman and Chief Executive Officer. Ken Burdick and Drew Asher are expected to join the Centene senior management team in new positions created as a result of the acquisition.
Today’s deal comes a day after the Trump Administration reportedly championed the dissolution of the Affordable Care Act, a move which saw hospital, health care providers, and insurance names fall yesterday. After the administration’s rhetoric yesterday, a Federal District Court judge in Texas ruled that the mandate requiring people to purchase health care is unconstitutional and therefore the entire Affordable Care Act must be voided.
Potential regulatory road blocks could emerge for a WCG/CNC tie up in the future, a proposition that has both stocks near session lows at the moment. A lot of money hangs in the balance if the ACA is shot down by the Trump Administration as both CNC and WCG rely heavily on the government health care marketplace.
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