Centene Corp.'s (CNC) - Get Report $3.75 billion transaction to buy substantially all of the assets of faith-based health plan Fidelis Care could further reduce the likelihood of Centene becoming an acquisition target, according to a stock a analyst.
The deal "likely further lowers the possibility of CNC itself becoming a takeout target, as it instead continues aggressive growth on the heels of the Health Net acquisition and expansion on exchanges," wrote Evercore ISI analyst Michael Newshel in a note.
St. Louis-based Centene after the market close on Tuesday, Sept. 12 announced the Fidelis transaction, which marks Centene's entry to New York.
Centene in March 2016 completed its acquisition of managed care organization Health Net Inc. in a cash-and-stock deal valued at about $6 billion, including the assumption of debt.
Fidelis, a not-for-profit corporation, was founded in 1993 as the Catholic Health Services Plan of Brooklyn and Queens. It offers health insurance coverage for children and adults through Medicaid, Qualified Health Plans, Child Health Plus, Essential Plan, as well as Medicare Advantage, Dual Advantage and Managed Long Term Care. Fidelis has a statewide network of about 70,000 providers.
In the first half of 2017, Fidelis had revenue of $4.8 billion. It served more than 1.6 million members as of end-June.
"We have a positive view of the deal and estimate potential adjusted EPS accretion of about 10% in 2018 and 14% in 2019 (assuming targeted synergies and moderating 10% top-line growth), vs. management guidance of HSD [high single-digit] to mid-teens in years 1 and low to mid-teens in year 2," wrote Newshel.
Shares of Centene were up 8%, $7.26, to $98.16.
The deal, expected to close in the first quarter of 2018, is subject to various closing conditions and receipt of New York regulatory approvals. Post-close, Rev. Patrick J. Frawley will continue as CEO of Fidelis, which will remain based in Queens with operations throughout the state.
"Our mission and values are the foundation of Fidelis Care and we are proud to have found a partner in Centene who shares our commitment to meeting the needs of all our members throughout the State of New York and continuing our mission to serve the health and wellbeing of underserved populations," Frawley said in the announcement.
Centene chairman, president and CEO Michael F. Neidorff said that through the transaction, "we can further enhance the well-being of Fidelis Care's members and continue to build linkages and systems for the coordination of care and services among healthcare, behavioral and social services while doing so at an appropriate level of cost."
Centene said that subject to market conditions, it plans to fund the acquisition with $2.3 billion of new equity, including share consideration, and $1.6 billion of new long-term debt. The company has secured the full $3.75 billion in committed bridge financing.
Citigroup Inc.'s Lorrie Warner, Raymond Cooper and Milad Hadziabdic provided Fidelis with financial advice and Norton Rose Fulbright LLP's Andrew Roth and Warren Nimetz served as legal counsel. Fidelis' in-house team included Frawley, David Thomas, Thomas Halloran and Santo Russo.
Allen & Co. LLC's LeRoy Kim served as financial adviser to Centene, which received legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP's Paul Schnell, Sean Doyle, Devin Knickerbocker, Michael Homison, Vincent Napolitano, Elena Coyle, Laura Kaufmann Belkhayat, Richmond Glasgow, Steven Messina, Mark Steinman, Erica Schohn, Young Park and Brian Krause. The Centene team included Keith Williamson.
Skadden and Allen advised Centene also advised Centene on its Health Net acquisition.
-- David Marcus contributed to this article
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