Centene Corp. and Health Net, Inc. announced that Centene will acquire Health Net shares in a cash and stock deal valued at $6.8 billion. The combined company will have more than 10 million members and $37 billion in annual revenues. The boards of directors of both companies unanimously approved the deal, which is subject to shareholder and customary regulatory approvals.

“Over the past five years, Centene has achieved record performance and today’s announcement is a significant next step in our strategy to increase scale and drive geographic and product diversification,” said Michael F. Neidorff, Centene’s chairman, president and CEO. “This transaction ensures that we extend our competitive position as one of the largest plans covering government-sponsored programs in the country.”

Woodland Hills, Calif-based Health Net provides managed care benefits to about six million people. The company, which primarily operates in Arizona, California, Oregon and Washington State, posted revenue of $14 billion in 2014. St. Louis-based Centene provides managed care benefits in 23 states to about 4.4 million people, mainly through government programs such as Medicaid. It posted revenue of $15.7 billion in 2014.

Neidorff will remain as chairman, president and CEO. Jay M. Gellert, Health Net’s president and CEO will assist in the transition. The company will retain its headquarters in St. Louis with offices across the country.

Our Take: Acquiring Health Net gives Centene’s already robust Medicaid business a boost, increasing its presence in the California Medicaid market, which at 12 million individuals is the largest in the country. 

“Centene is the largest Medicaid managed-care company, but has only minor market share in California, where Health Net has been rapidly growing,” said Peter Costa, an analyst at Wells Fargo & Co., in a Bloomberg interview. 

The deal also allows for Centene to expand into Medicare and more traditional markets where Health Net currently competes.

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