Health Net, Inc. HNT and Centene Corporation CNC have entered into an agreement pertaining to which the latter will acquire all the shares of the former to form a combined entity.
The total consideration of the deal is $6.8 billion, including cash, stock and $500 million of debt. The $78.57 per share deal represents a premium of nearly 21% over Health Net’s closing price as of Jul 1, 2015. Per the terms of the agreement, shareholders of Health Net will receive 0.622 shares for each Centene share and $28.25 in cash per Health Net share.
The transaction is pending approval by shareholders of both the companies and is scheduled to culminate by early 2016. On culmination, Centene shareholders will have a 71% stake in the combined entity, while Health Net shareholders will own the remaining 29%.
The merger of the two companies should create a diversified multi-national health care enterprise that will cater to more than ten million members nationwide. Also, the new entity is estimated to have 2015 pro forma premium and service revenues of nearly $37 billion. Additionally, the deal is projected to be accretive to earnings per share (EPS) by 10% and adjusted earnings per share by 20% in the first year post closure. Cost synergies from the deal are expected to be nearly $150 million by 24 months from the closing date, of which 50% is likely to be achieved within the first twelve months.
The combined company will have a strong presence in the California Medicaid program, serve California’s dual eligibles, and expand Medcaid and Medicare programs in the Western United states. The merger would also tap opportunities in government programs like TRICARE, and the U.S. Department of Veterans Affairs. Additionally, the combined company will provide its members access to more solutions, with options for integrated specialty services across the entire enterprise.
Health Net currently holds a Zacks Rank #2 (Buy). Investors interested in the health care space may also consider stocks like Anthem, Inc. ANTM and Aetna, Inc. AET. While Anthem sports a Zacks Rank #1 (Strong Buy), Aetna has the same Zacks Rank as Health Net.
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