WellCare Health Plans, Inc. WCG is set to acquire Meridian Health Plans of Michigan and Illinois and MeridianRx, a pharmacy benefit manager (PBM) to become the top-most Medicaid provider in the aforementioned states. The company would be paying a total of $2.5 billion in cash. The transaction is expected to close by the end of this year.
With this deal, WellCare will be able to add around 1.07 million of Medicaid members in Michigan and Illinois. This Zacks Rank #1 (Strong Buy) company is also expected to generate more than $4.3 billion in 2018 total revenues from Meridian’s businesses and acquire an integrated PBM platform. You can see the complete list of today’s Zacks #1 Rank stocks here.
WellCare has always pursued strategic acquisitions to accelerate its growth and strengthen its portfolio. In 2017, the company had acquired Arizona Medicaid Assets of Phoenix Health Plan and Universal American Corp.
The acquisition of one of the largest privately held, for-profit managed care organizations in the United States is reminiscent of the increased merger and acquisition taking place in the healthcare industry, as the players are busy transforming their businesses to become a comprehensive healthcare provider. In the same vein, two mega acquisitions of Express Scripts Holding Company ESRX by Cigna Corp. CI and that of Aetna Inc. AET by CVS Health Corp. CVS are already underway.
Rising medical costs, shift to value-based care, threat of competition from online retailers like Amazon.com Inc., demographic changes and increased regulations are some of the catalysts driving mergers and acquisitions in the healthcare industry.
The WellCare and Meridian transaction is expected to add about 40 to 50 cents per share to the company’s adjusted earnings in 2019, 70-80 cents per share in 2020 and more than $1.00 per share in 2021. This is inclusive of $30-$40 million in synergies that will ramp up over the upcoming years and exclusive of one-time transaction-related expenses of $75 million to $85 million and cumulative integration-related expenses of $50 million to $60 million.
WellCare expects to fund this transaction through a combination of cash in hand, an undrawn $1 billion revolving credit facility, issue of new equity of about $800 million to $1.2 billion, and new debt of around $600 million to $1.0 billion.
The company also announced that it has secured $2.5 billion in committed bridge financing.
Shares of WellCare have rallied 9.96% year to date, outperforming the industry’s average of 7.28%.
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