US health insurance major Cengene to merge WellCare in a $17.3 bn deal
01 April 2019
Centene Corporation and WellCare Health Plans Inc on Wednesday said it would acquire smaller peer WellCare in a cash and stock transaction worth $17.3 billion.
The transaction is based on Centene’s closing stock price of $305.39 on 26 March 2019 and subject to the terms of a definitive merger agreement.
Under the terms of the merger agreement, 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. Based on Centene's closing stock price on 26 March 2019, the implied cash and stock consideration to be received by WellCare shareholders is $305.39 per share.
The cash and stock consideration represents an approximately 21.0 per cent premium to WellCare shareholders based on the 30-day volume weighted average closing stock price of WellCare prior to signing and an approximately 32.1 per cent premium based on the closing stock price of WellCare on 26 March 2019.
Upon completion of the transaction, Centene shareholders will own approximately 71 per cent of the combined entity, with WellCare shareholders owning approximately 29 per cent.
The transaction, which has been unanimously approved by the boards of both companies, will create a premier healthcare enterprise focused on government-sponsored healthcare programmes and a leader in `Medicaid’, `Medicare’ and the health insurance marketplace, Centene stated in a release.
Centene and WellCare are two high-performing companies with decades of experience serving a broad range of states and large government programmes.
Together, the two companies will have approximately 22 million members across all 50 states of the US. A combination will offer increased scale and leading medicare platform and enhance growth.
The transaction is projected to be mid-single digit accretive to adjusted EPS in the second year of operation.
“The combination will enable the combined company to provide access to more comprehensive and differentiated solutions across more markets with a continued focus on affordable, high-quality, culturally-sensitive healthcare services,” Centene stated in its release.
The combined entity will have approximately $97 billion and $5 billion in EBITDA, based on the most recent 2019 outlooks publicly reported by both companies.
"This transformational combination creates a leading healthcare enterprise that is committed to helping people live healthier lives through a localized approach and provides access to high-quality healthcare through a wide range of affordable health solutions," said Michael F Neidorff, Centene's chairman and chief executive officer.
"With the addition of WellCare, we expect to bolster and diversify our product offerings, increase our scale and have access to new markets, which will in turn, enable us to continue investing in technology and better serve members with innovative programs designed to meet their needs.,. We have long admired the WellCare organization and together look forward to building on our mission of transforming the health of our communities, one person at a time," he added
"We are enthusiastic about the opportunity to create a high-performing combined business focused on government-sponsored managed care that will bring benefits to all of our stakeholders," said Ken Burdick, WellCare's chief executive officer.
The combined company would be the leader in government-sponsored healthcare with increased scale and diversification both geographically and in its managed care service offerings, and enhance access to high-quality services for members. It will offer affordable and high-quality products to its more than 12 million Medicaid and approximately 5 million Medicare members (including Medicare Prescription Drug Plan), as well as individuals served in the Health Insurance Marketplace and the TRICARE programme.
The combined company will operate 31 NCQA accredited health plans across the country and will have increased exposure to government-sponsored healthcare solutions through WellCare's Medicare Advantage and Medicare Prescription Drug Plans. It will also benefit from leveraging Centene's growing position in the Health Insurance Marketplace to new markets.
The transaction creates a company with the size and scale to better serve members through enhanced healthcare programs, expanded capabilities and increased investment in technology, it added.
Centene intends to primarily fund the cash portion of the acquisition through debt financing, with Barclays providing an $8.35 billion financing commitment. Upon closing, Centene expects its debt-to-capital ratio to be approximately 40%, and intends to use its strong earnings and cash flows to achieve its targeted debt-to-capital ratio in the mid-to-upper 30 per cent range within 12 to 18 months post close.
The transaction is subject to approval by Centene and WellCare shareholders. The transaction is also conditioned on clearance under the Hart-Scott Rodino Act, receipt of required state regulatory approvals and other customary closing conditions. Centene and WellCare expect to complete the transaction in the first half of 2020.