- Updated July 7, 2015
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By Chad Terhune, July 2, 2015, Los Angeles Times
Woodland Hills insurer Health Net Inc. has agreed to be acquired for $6.8 billion by a St. Louis rival in what may be the start of an industry-wide merger wave.
Centene Corp. on Thursday said it would buy Health Net, California’s fourth-largest health insurer, in a cash-and-stock deal that includes $500 million in debt.
The total offer of $78.57 a share was a 21% premium over Health Net’s closing price Wednesday.
However, right after the deal was announced, some analysts said industry leader UnitedHealth Group Inc. might make a competing offer.
UnitedHealth, Anthem Inc. and other big insurers have all been looking for merger partners in recent weeks. Cigna Corp. rejected a recent $54-billion offer from Anthem, the nation’s second-largest health insurer.
Health Net is prized for its strong presence in Medicaid managed care in California and other Western states. The company is also a big player on California’s Obamacare exchange for individual consumers.
After the merger, Centene said it expects to become one of the largest Medicaid health insurers in the country with about 6 million members.
That has been a fast-growing business for the health insurance industry due to expansion under the Affordable Care Act and many cash-strapped states enrolling patients in cost-conscious HMOs.
“Centene is the largest Medicaid managed-care company, but has only minor market share in California where Health Net has been rapidly growing in Medicaid, said Peter Costa, a senior healthcare analyst at Wells Fargo.
“It is now clear that Centene and Health Net do not desire to be left out of the consolidation wave, he said.
Health Net shares rallied on the news, jumping $7.02, or 11%, to $72.08 in midday trading.
But investors sold off Centene shares, pushing the stock price down $4.93 or 6% to $75.97.
The combined company, which will be based in St. Louis, would have annual revenue of roughly $37 billion and more than 10 million members overall.
Centene shareholders would hold 71% of the combined company and Health Net investors would own 29%.
Health Net would be the latest of many corporate headquarters to exit Southern California. In May, Irvine chip maker Broadcom Corp. was sold to Singapore-based Avago Technologies. Last year, Toyota Motor Corp. said it would move its sales and marketing headquarters to suburban Dallas from Torrance, Occidental Petroleum Corp. moved its headquarters from Los Angeles to Houston and Irvine-based Botox maker Allergan Inc., was taken over by Irish firm Actavis and its headquarters eventually relocated to Dublin.
The deal could mean job losses at Health Net’s headquarters in Woodland Hills. Michael Neidorff, Centene’s chairman and chief executive, will hold those jobs after the merger. Jay Gellert, Health Net’s CEO, said he would assist in the transition.
“Centene has an impressive record of serving populations that have been traditionally underserved in a high-quality and consumer-centered manner,” Gellert said. “We expect that Health Net associates will play a critical role in the future of the combined company.”
Some analysts said a bidding war could now erupt.
“We expect UnitedHealth could come in with a competing bid for either Health Net or Centene or both, said Ana Gupte, a healthcare analyst at Leerink Partners.