U.S. health insurer Centene Corp is buying its smaller rival WellCare Health Plans Inc for $15.27 billion in a cash-and-stock deal. The companies announced on Wednesday that the deal was valued at $17.3 billion, including debt.
Shares of WellCare rose 23 percent to $284 in premarket trading.
The offer of $305.39 per share represents a premium of about 32 percent to WellCare’s closing price on Tuesday.
The deal will create a premier healthcare enterprise focused on government-sponsored healthcare programs and a leader in Medicaid, Medicare and the Health Insurance Marketplace.
The purchase will give Centene, which focuses on Medicaid and Affordable Care Act markets, a Medicare business even as the Trump administration launches a fresh assault on Obamacare. The enlarged company would be threatened if higher courts uphold a request to wipe out the entire law, though legal experts have called that outcome unlikely.
The deal will add to adjusted earnings per share in its second year, the companies said.
“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.”
The deal Wednesday comes two days day after the administration attacked the ACA in court, saying that former President Barack Obama’s health care law should be declared unconstitutional after Congress repealed one part of it — unpopular fines on people who remain uninsured.
The deal would create a powerhouse medical provider in Medicare, Medicaid and the Affordable Care Act marketplace with about 22 million members in the U.S.
Both health insurance companies have been growing, particular in the business of government subsidized health benefits but are still much smaller than UnitedHealth Group, Cigna and Anthem.
Centene’s U.S. business under CEO Michael Neidorff has grown rapidly thanks to the ACA and its subsidized individual coverage known as Obamacare as well as the expansion of Medicaid benefits for poor Americans. Centene now manages Medicaid benefits for more than 8 million for states and offers individual coverage on the ACA’s public exchanges in 20 states.
Centene has nearly 2 million Obamacare customers and 20% marketshare after entering four new states for 2019 and expanding in six existing ACA markets where it has already been selling individual coverage, including markets Anthem, Aetna and UnitedHealth Group departed.
WellCare, meanwhile, has been growing as well but is still considered largely a regional player under CEO Ken Burdick even after it acquisition last year of Meridian Health Plans of Illinois and Michigan and the MeridianRx pharmacy benefit manager. The Meridian deal gave WellCare a big boost in managing Medicaid benefits, which have expanded under the ACA.
But both Centene and WellCare have been increasingly getting into the potentially lucrative Medicare Advantage business, which sells private health coverage to seniors via contracts with the federal government.
The Trump administration has followed the Obama administration’s lead by changing rules to allow Medicare Advantage plans to cover more supplemental health benefits. Such rule changes are expected to result in millions more seniors choosing Medicare Advantage plans over traditional Medicare.