Centene Corporation and WellCare Health Plans, Inc., have announced that Centene will acquire WellCare in a cash and stock transaction for $305.39 per share based on Centene's closing stock price on March 26, 2019 for a total enterprise value of $17.3 billion pursuant to the terms of a definitive merger agreement.
The transaction, which was unanimously approved by the boards of both companies, will create a healthcare enterprise focused on government-sponsored healthcare programs including Medicaid, Medicare, and the Health Insurance Marketplace.
The companies said in a statement that the combined enterprise would have approximately 22 million members across all 50 states in the U.S. The enterprise also would be expected to have estimated pro forma 2019 revenues of 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. Centene has grown significantly by adding capabilities that have increased revenues and enabled margin expansion. The addition of WellCare is the next logical step in our growth strategy and to drive value for our collective shareholders. 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.”
“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. “By combining with Centene, we will create a more competitive, diversified company that is better able to deliver fully integrated, high quality, cost effective services for our members and government partners. Both companies share a deep history and focus on the government-sponsored healthcare market and, together, our expertise will allow us to deliver enhanced value for our shareholders, opportunities for our associates and better outcomes for our members.”
“I could not be more excited to have the next chapter of WellCare's successful journey be as part of the Centene organization,” said Christian Michalik, chairman of the WellCare board of directors. “This transaction is a testament to the mission-driven company the WellCare team has built, and their unrelenting focus on putting members first. As part of the combined company, our shareholders can look forward to a continued bright future as Centene increases its scale and delivers diversified services to meet the needs of the communities both companies serve.”
According to the companies, the combined enterprise will offer products to its more than 12 million Medicaid and approximately five million Medicare members (including Medicare Prescription Drug Plan), as well as individuals served in the Health Insurance Marketplace and the TRICARE program. The combined company will operate 31 NCQA accredited health plans across the country.
In addition, with the addition of WellCare's markets and its healthcare plans in Hawaii, Kentucky, and New Jersey and enhanced presence in Michigan, the combined company will operate nationally.
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 March 26, 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 percent 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 percent premium based on the closing stock price of WellCare on March 26, 2019.
Upon completion of the transaction, Centene shareholders will own approximately 71 percent of the combined entity, with WellCare shareholders owning approximately 29 percent.
The companies said that the transaction is not contingent upon financing. 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 percent, and intends to achieve its targeted debt-to-capital ratio in the mid-to-upper 30 percent 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 said that they expect to complete the transaction in the first half of 2020.
Under agreement, 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, Mr. Neidorff will lead the combined company as chairman and chief executive officer. Mr. Burdick and Drew Asher are expected to join the Centene senior management team in new positions created as a result of the acquisition.
The combined company will be headquartered in St. Louis, the location of Centene's headquarters, with operations throughout the country, and will continue to support substantial operations in WellCare's home state of Florida consistent with the size of the business, as part of its commitment to a strong local approach.
Allen & Company LLC, Barclays, Evercore, and J.P. Morgan Securities LLC are serving as financial advisors to Centene and Skadden, Arps, Slate, Meagher & Flom LLP is serving as its legal counsel. Goldman Sachs is serving as financial advisor to WellCare and Kirkland & Ellis LLP is serving as its legal counsel.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].