Magellan Health shares gained more than 12% in trading after the deal was announced.
Magellan Health will add 5.5 million new members to Centene's government-sponsored health plans, as well as 18 million third-party customers of specialty health services. It will also add 2 million pharmacy benefit manager members and 16 million medical pharmacy members.
Magellan Health will be part of Centene's Health Care Enterprises division and will continue to independently support its existing customers and pursue growth opportunities, the companies said in a joint statement.
Centene said it intends to primarily fund the cash portion of the acquisition through debt financing, and JPMorgan has provided a $2.381 billion bridge financing commitment.
The companies said they expect the deal to close in the second half of 2021, at which time Centene expects its debt-to-capital ratio to be in the low 40% range within 12 to 18 months.
Magellan Health has been looking to sell itself for some time. In early 2019, activist hedge fund Starboard Value, which at the time owned a roughly 10% stake in Magellan, called on the company to consider selling itself and nominated a board slate.
Magellan and Starboard reached a deal for four independent directors. Magellan also agreed to form a strategic review committee and drew interest from a handful of bidders for all or part of the company.
The Scottsdale, Arizona-based health management services company in mid-2019 was reportedly close to a sale to private-equity firm Centerbridge Partners, though an agreement was never reached.
92.95 USD +10.11 (12.20%)
Shares of Magellan Health were up 12.2% at $92.95 in trading on Monday, while shares of Centene rose 0.14% to $60.12.