Speculation that Centene will abort its merger with WellCare Health Plans and submit to a takeover by Humana may be subsiding among big institutional investors who remain supportive of the deal.
Reports last week that a small shareholder, Third Point LLC, wants Centene “to consider selling itself” before buying WellCare aren’t going to be enough to change Centene management’s mind. Centene and WellCare last week scheduled a June 24 vote on the merger and say they aren’t backing away from the deal.
Meanwhile, there’s yet to be a big institutional shareholder that has come out against the Centene-WellCare deal. Third Point holds about 1.5% of Centene’s shares and is reportedly buying shares to increase its stake. Third point has no comment Tuesday. A report earlier this month said two other hedge funds may also oppose Centene’s WellCare acquisition.
But the bigger shareholders of both Centene and WellCare remain behind the deal and don’t want Centene to sell to Humana. “Very large long-only institutional investors of Centene and Humana have not been in favor of this combination,” Ana Gupte, SVB Leerink’s managing director of health care services said Friday afternoon in an interview. Institutional investors want the Centene-WellCare deal.
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Centene last month announced plans to buy WellCare for more than $15 billion in a deal that would expand the business of administering Medicaid benefits for poor Americans as well as private Medicare Advantage coverage.
Centene is taking the speculation in stride in public statements since various rumors and speculation has emerged about small investors that may not support the WellCare merger.
“When considering M&A transactions, the Centene board considers any and all alternatives towards shareholder value creation,” Centene spokeswoman Marcela Hawn said. “We believe the transaction with WellCare is in the best interest of shareholders as it will deliver significant upside growth and profitability. We remain as committed to our combination with WellCare today, as we did when we announced it on March 27.”
Centene is the nation’s biggest player in Obamacare, the subsidized individual coverage under the Affordable Care Act. And many don’t see Humana being interested in taking on Centene’s Obamacare business currently in 20 states given Humana exited that business after being unable to successfully manage costs of sick patients who were signing up for such coverage.
Humana has been looking for ways to grow its Medicaid business lately, finding success in Florida with plans to bid on state contracts to administer Medicaid benefits in at least two other states. Humana is a major player in providing privatized Medicare benefits known as Medicare Advantage while Centene is one of the biggest providers of Medicaid benefits in contracts with states.
Humana CEO Bruce Broussard has told analysts and investors that he’s more interested in growing the company’s Medicaid business organically rather through a big acquisition. Humana has made no public comment regarding any interest in Centene.
Humana has, however, said it is focused on grow its enrollment in “dual-eligible special needs plans,” which provide extra coverage and are lucrative to insurers who successfully manage the care of such patients. Such plans combine Medicare benefits with drug coverage and they are available to patients with certain health conditions who are eligible for both Medicare and Medicaid coverage for the poor, according to Humana’s web site.
“He is looking for a very targeted, local Medicaid presence,” SVB Leerink’s Gupte said of Humana’s Broussard and his Medicaid growth strategy. “He doesn’t need to be everywhere.”
Date: May 30, 2019