Medicaid coverage provider Centene is spending about $6.3 billion to buy fellow insurer Health Net, as managed care companies look to bulk up while adjusting to the federal health care overhaul.
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Any deals involving UnitedHealth, Aetna, Cigna, Anthem and Humana are likely to involve price tags that are seven or eight times, or more, larger than the $6.8 billion Centene is paying for Health Net. Upon completion of the transaction, Centene shareholders would own approximately 71% of the combined entity, with Health Net shareholders owning approximately 29%. It could in theory wait until after the Centene-Health Net merger closes and buy the stronger, combined company, though getting regulatory approval may be tougher at that point.
Health insurers are not alone in trying to beef up. Our successes complement Centene very well and will lead to better offerings in line with new consumer and payer demands. This will provide ongoing support of critical Health Net applications and processes.
Now what: Combining these two insurers should offer up plenty of scale that can be leveraged against fixed costs for margin and profit growth, while also expanding Centene’s reach in key western markets including California, Arizona, and Washington. This includes Medicare Advantage, Tricare and veterans affairs programs. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. It could also spur more deal making in the health insurance sector, which has already seen a blitz of merger activity this year. Both companies have demonstrated success focusing on the subsidized portion of the Health Insurance Marketplace.
It is just speculation, but perhaps a $6.8 billion deal, one announced right before Independence Day to boot, is not enough to thrill IHF investors.
The acquisition will generate an additional 10 percent of diluted earnings in the first year following the closing, according to the statement. In the last three years, Xoom traded as high as $36.46, and most recently traded above the target price – at $25.18 – on July 14, 2014.
Michael Neidorff, Centene’s chairman and chief executive, will hold those jobs after the merger. Mr. Gellert will assist to achieve a smooth transition.
Shares of St. Louis, Mo.-based Centene were trading at $76 after the announcement on Thursday after closing at $80.90 on Wednesday night.
Centene intends to fund the cash portion of the acquisition through a combination of existing cash on hand and debt financing.
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“We expect UnitedHealth could come in with a competing bid for either Health Net or Centene or both”, said Ana Gupte, a healthcare analyst at Leerink Partners.
