The move comes a day after the Trump administration renewed talk of striking down the Affordable Care Act. Centene is the largest provider of plans through the Affordable Care Act’s marketplaces.
Centene, after years of rapid growth, also is the biggest player in Medicaid managed care, but the acquisition of WellCare will increase its lead substantially, while advancing its efforts to expand in the Medicare Advantage sector.
Together, the companies would achieve substantial scale, an important goal, as the biggest health-insurance players have consolidated to form ever-larger conglomerates that bring together multiple different businesses, from pharmacy benefits to clinics and drugstores. Centene also supplies coverage for members of the military and health care for prison populations.
Under the deal, Centene agreed to swap $120 in cash and 3.38 Centene shares for each WellCare share. Based on Centene’s closing price Tuesday, the deal values WellCare at $305.39 a share, a 32% premium to its closing price. The companies said the deal’s enterprise value, which includes the assumption of debt, is $17.3 billion
Together, the companies will have about 22 million members nationwide and about $97 billion in revenue in 2019 on a pro forma basis. Through the deal, Centene will be able to grow its Medicaid offerings, the companies said. WellCare also has a Medicare platform.
Two of WellCare’s board members will join the combined company’s board, which will have 11 members. Centene Chief Executive Michael Neidorff will still run Centene. WellCare CEO Ken Burdick and financial chief Drew Asher will join Centene.
Shares of WellCare rose 10% to $255.43 in morning trading, while shares of Centene fell 7% to $51.10.
Centene, based in St. Louis, had revenue of $60.1 billion in 2018, with membership of around 14 million, while WellCare, of Tampa, Fla., had revenue of around $20.4 billion and around 5.5 million people enrolled.
Both have expanded rapidly, building up their reach through repeated acquisitions, with Centene recently taking over major New York plan Fidelis Care, and WellCare buying Medicare drug plan assets spun off by Aetna Inc. as part of its deal to be acquired by CVS Health Corp. The CEOs of both companies—Mr. Neidorff of Centene, who has built his firm into a national player, and Mr. Burdick of WellCare, who is seen as having turned around the company in recent years—are well-regarded by investors.
But the companies’ similar focus on government plans will raise potential antitrust concerns in areas where they overlap, principally in Medicaid. Centene had around 8.4 million Medicaid enrollees at the end of last year, while WellCare had 3.9 million. Among the states where the two companies have the biggest combined Medicaid market share are Florida, Georgia, Missouri and Illinois, according to an analysis by Jefferies.
Because of their focus on government business, both companies also face challenges tied to the political and legal environment. In particular, the Trump administration recently asked a court to invalidate the entire ACA, the law that created the marketplace business that is a key line for Centene, as well as an expansion of Medicaid. Some Democrats’ recent focus on creating a universal government health plan has also weighed on the shares of health insurers.