- Centene said Wednesday it plans to purchase its competitor WellCare in a cash and stock deal valued at $17.3 billion. The two boards have signed off on the deal that would still need various state regulatory approvals and the greenlight from shareholders.
- The deal bulks up Centene's size and scale. The St. Louis-based managed care organization would gain an additional 5.5 million lives from WellCare, a majority of those Medicaid beneficiaries — adding to Centene's core business. The union would more than double Centene's Medicare membership.
- Combined, the company would cover 22 million lives across all 50 states and generate $97 billion in revenue.
Centene's acquisition deal comes as other insurers are seeking to bulk up in size and scale with landmark deals that diversify their offerings. That includes Cigna's purchase of pharmacy benefit manager Express Scripts and, more recently, Cambia's combination with North Carolina's Blue Cross Blue Shield plan.
The union would bulk up Centene's product offerings in government sponsored health plans, significantly expanding its Medicare membership. Centene would also benefit from WellCare's pickup of Medicare Part D members from Aetna, which are expected to come online Jan. 1, WellCare's CEO Ken Burdick said during a call with investors announcing the deal.
The tie-up would make Centene the "undisputed" leader in Medicaid with more than 11 million total lives covered, according to Jefferies analysts who also said the strategic merits of the deal make sense.
Centene's CEO Michael Neidorff would lead the combined company and its headquarters will remain in St. Louis. Analysts noted the combination could provide a "highly qualified successor" to the 76-year-old Neidorff in Burdick, which would answer recurring succession planning questions. Burdick, whose age was listed at 59 in the most recent proxy filing, will serve on the senior leadership team, the companies said Wednesday.
The pact is expected to close in the first half of next year and the companies forecast $500 million in cost savings.
Neidorff sought to downplay any antitrust issues the combination may face given the amount of overlap in a number of states. He noted that the competitive landscape is different than traditional insurers because the states set the rates when contracting out the business and beneficiaries can choose the plan they want. Neidorff said the antitrust issues are "very manageable." Though executives noted divestitures are included in the expected cost savings.
The announcement comes on the heels of news the Trump administration backs the elimination of the Affordable Care Act in court. Wiping out the ACA would provide exposure to Centene, one of the largest insurers selling plans on the exchanges. With WellCare, 15% of its revenue would come from marketplace plans, according to information shared during Wednesday's call.
Centene covers 14 million members, 8.4 million of which are Medicaid beneficiaries, Centene's core business. The company's Medicare footprint covers nearly 417,000 people, including those with Medicare Advantage and supplemental plans. In 2018, the payer added 1.8 million members, a 15% increase from the year prior. Revenue increased 24% to $60.1 billion year over year.