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Smaller US Rival Wellcare To Be Acquired By Health Insurer Centene For $15.27B

Smaller US Rival Wellcare To Be Acquired By Health Insurer Centene For $15.27B
With the aim of boosting its government-backed healthcare business, the United States based health insurer Centene Corp has decided to acquire its smaller rival WellCare Health Plans in a cash-and-stock deal. The acquisition valued the smaller US company WellCare at $15.27 billion.
There have been speculations about the merger of the two companies for some time now as reports published earlier informed investors about the negotiations going on between the two companies.
Following the announcement of the deal., there was 23 per cent increase in the shares of WellCare and traded at 12.5 percent higher at $260.28. On the other hand, there was a drop of 7 per cent in the shares of Centene before the bell on Wednesday.
Analysts said that Centene’s significant dependence on the Obamacare healthcare exchanges would likely be reduced because of the acquisition. The deal comes at a time when there is a definitive push by the Trump administration to scale down and even stop the signature healthcare law formulated and implemented by the former President Barack Obama.
A federal judge’s ruling earlier this week about Obamacare to have violated the U.S. Constitution since it mandated that people had to purchase health insurance, was supported by the Department of Justice (DOJ).
According to SVB Leerink analyst Ana Gupte, about 40 per cent of the earnings for Centene are generated from its Obamacare business which has increased its volatility given the stance taken by the DOJ over Obamacare.
Following the completion of a series of consolidation that swept across the U.S. healthcare sector, analysts believe that the capability of Centene to better compete against large rivals UnitedHealth Group Inc and CVS Health Corp would be enhanced by the acquisition of WellCare.
While its $69 billion acquisition of Aetna Inc was closed last year by pharmacy benefits manager CVS Health Corp, the acquisition of Express Scripts Holding Co for a deal worth $54 billion was completed by health insurer Cigna Corp.
It is anticipated that the Centene’s deal would come to a close by the first half of 2020. Bernstein analyst Lance Wilkes said in a pre-deal note that the deal would also allow Centene to grow its Medicaid business and save on costs. It would also allow the company to expand into Medicare Advantage – a segment that is currently a small one for the company.
The deal, including debt, was valued at $17.3 billion and the offer price of $305.39 per share represents a premium of about 32 percent to WellCare’s closing price on Tuesday. 3.38 shares of Centene common stock would be given to shareholders of WellCare in addition to  $120 in cash for each WellCare share. That would take their ownership to about 29 percent of the new entity.
The two companies said in a statement that there would be a total of 22 million members in the United States for Centene after completion of the deal and would be able to save about $500 million in costs every year by the second year of the closing.

Christopher J. Mitchell

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