Coverage: Centene is buying Wellcare for $15.3 billion

Health insurer Centene Corp. agreed to buy competitor WellCare Health Plans Inc. for around $15.3 billion, creating a giant in the business of managing government health programs.

Anna Wilde Mathews and Allison Prang of The Wall Street Journal had the news:

The move comes after the Trump administration recently renewed talk of striking down the Affordable Care Act. Centene is the largest provider of plans through the Affordable Care Act’s marketplaces.

Centene, after years of rapid growth, also is the biggest player in Medicaid managed care, but the acquisition of WellCare will increase its lead substantially, while advancing its efforts to expand in the Medicare Advantage sector.

Together, the companies would achieve substantial scale, an important goal, as the biggest health-insurance players have consolidated to form ever-larger conglomerates that bring together multiple different businesses, from pharmacy benefits to clinics and drugstores. Centene also supplies coverage for members of the military and health care for prison populations.

Ben Tobin of USA Today reported that Centene’s shares fell on the news:

WellCare’s market capitalization was about $11.6 billion at Tuesday’s close. Shares of the company were up about 10 percent in midday trading.

Centene (CNC) shares were down about 7 percent.

Headquartered in St. Louis, Centene brought in about $60.1 billion in revenue in 2018. Meanwhile, WellCare is headquartered in Tampa and had a 2018 revenue of about $20.4 billion. The companies have memberships of around 14 million and 5.5 million, respectively.

The transaction follows what has been thus far a busy year of mergers involving drugmakers, health-care insurers and pharmacies. The transaction, which has been unanimously approved by the boards of both companies, will be completed in the first half of 2020, according to the companies.

Late Monday, the Department of Justice said it agreed with a previous Texas district court’s ruling that the entire ACA, also known as Obamacare, is unconstitutional. That was a change from a previous DOJ argument to keep the health-care law mostly intact.

The decision sparked a new fight between Republicans and Democrats, who have been jockeying to be known as the party of health care. President Trump has called on Republicans to revive efforts to dismantle the ACA, and Democrats have introduced legislation to shore up the ACA and expand enrollment.

Analyst Ana Gupte at SVB Leerink told clients in a Tuesday research note that the companies most exposed to the DOJ’s decision were Centene and Molina Healthcare Inc. and WellCare to a lesser extent.

So on Wednesday, after the Centene-WellCare deal was announced, Gupte said she was “unsurprised” by the combination.