NEW YORK (The Deal) -- Centene (CNC) - Get Centene Corporation Report said Thursday it would buy managed care organization Health Net (HNT) for $6.8 billion, including $500 million of debt, in a bid to keep up with rapid consolidation in health care insurance.
The terms of the deal call for Health Net shareholders to receive 0.622 shares of Centene common stock and $28.25 in cash for every share of Health Net common stock. A statement by the company noted that based on Centene's closing stock price on July 1, 2015 of $65.06 the consideration of $78.57 per share represents a 21% premium to Health Net's closing.
Centene provides health insurance plans to the under-insured and uninsured through Medicaid, Medicare and other products. Woodland Hills, Calif.-based Health Net also provides health care services through government-sponsored managed care plans and health plans to six million people across the U.S.
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 has a market capitalization of $9.2 billion. Health Net shares jumped 11% to trade at $72 Thursday.
The merger of the two companies would address over 10 million members and have service revenue of around $37 billion, with Centene's growth accelerating as it provides more options to uninsured and under-insured individuals. This includes Medicare Advantage, Tricare and veterans affairs programs.
Health Net, which had been on The Deal's watch list as likely to be targeted by activist investors, had long been considered a targeted target. In its most recent quarterly report filed in May, the company reported total revenues on health plan service premiums, government contracts, net income and administrative fees for these products of $3.8 billion for the three months ended in March 31 this year, as opposed to $3.04 billion in the same time period during 2014.
"Centene has an impressive record of serving populations that have been traditionally underserved in a high-quality and consumer-centered manner," said Jay Gellert, Health Net's president and CEO, in a statement. "Our successes complement Centene very well and will lead to better offerings in line with new consumer and payer demands."
The deal comes as health insurers rush to keep up with consolidation in the sector, mostly powered by the Affordable Care Act. Dealmakers got a big dose of certainty about the ACA with the recent Supreme Court decision rejecting a challenge to the legislation.
Anthem (ANTM) - Get Anthem, Inc. Report and Cigna (CI) - Get Cigna Corporation Report reportedly were in talks again after Anthem rejected a $54 billion bid from its rival. Humana (HUM) - Get Humana Inc. (HUM) Report reportedly has retained Goldman Sachs to explore inbound offers, and is said to be in talks with Aetna (AET) .
Most recently Centene gained Louisiana Medicaid contracts from Community Health Solutions of America, which assigned its contract with the Louisiana Department of Health and Hospitals to a subsidiary of Centene. The deal, which was announced last June, was to price between $110 million to $140 million.
Health Net is expected to strengthen the merged company's hold in the California Medicaid program, which serves over 12 million individuals. It also will give Centene access to California's dual demonstration program and expansion in other Medicaid and Medicare programs in the western United States. The combined companies are estimated to have $150 million of annual cost synergies by the second year following the deal's close.
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