Centene Corporation CNC inked a deal to acquire Magellan Health, Inc. MGLN for $95 per share in cash at a total worth of $2.2 billion. This deal is approved by the board of directors of both parties and is expected to be completed in the second half of 2021. However, the same is subject to certain closing conditions.
The company estimates the buyout to be slightly accretive in the first year and add to its adjusted EPS in low to mid-single digit percentage by the second year, which is expected to comprise around $50 million in annual net cost synergies.
Rationale Behind the Deal
The strategic move will strengthen Centene’s position in the market and will enable the leading insurer to establish a behavioral health platform. The merger is expected to result in better health outcomes of patients. Precisely, behavioral health is one of the most underserved areas and given the current situation, demand for it is booming. Two of the five Americans are suffering mental health issues due to the prevalent pandemic, which adversely impacted the overall economy. Consequently, unemployment levels inducing financial stress affected people’s mental health in more ways than one.
The combination of both companies allows the merger of behavioral health, specialty healthcare and pharmacy management, which is expected to create better healthcare.
This deal announcement comes after a year of the company’s $17.3-billion acquisition of WellCare Health Plans, another insurer focused on government-sponsored health programs.
The new agreement will allow Centene to establish one of the nation’s biggest behavioral health platforms across 41 million members with better medical care facilities. The transaction will consolidate its leadership status in government sponsored healthcare, bringing 5.5 million new members under the coverage of government-sponsored plans.
Magellan Health will also add specialty health services for 18 million third-party customer members apart from Centene's own members. The company will also gain two million PBM members and 16 million medical pharmacy members, thus boosting its portfolio of pharmacy platform.
This acquisition will enhance the value of shareholders via cost synergies and new cross-sell opportunities. Magellan Health will continue to support its current customers and pursue growth opportunities as part of Centene's Health Care Enterprises.
The best part is that both companies shared the same commitment to serve the most vulnerable population while reducing the overall expenses.
The deal is expected to enrich the company’s growing Health Care Enterprises portfolio, which offers a suite of cutting-edge technologies and services to all its members.
Centene’s mergers and acquisitions strategy mainly targets market expansions and increasing its Medicaid membership. Certain acquisitions in the past like Community Medical Holdings, MHM Services and Fidelis Care already contributed to its revenues and helped extending its capabilities.
The insurer plans to fund the cash portion through debt financing. J.P. Morgan already made a $2.381-billion bridge financing commitment. The company anticipates its debt-to-capital ratio to be in the low 40% range. It has the intension to use its solid earnings and cash flows to achieve the desirable debt-to-capital ratio in the upper 30% range within 12-18 months after the deal’s closure.
Zacks Rank and Price Performance
Shares of this currently Zacks Rank #5 (Strong Sell) company have lost 1.5% in a year's time against the industry's growth of 9%.
However, some of its peers, namely Anthem, Inc. ANTM and Molina Healthcare, Inc. MOH have gained 57.3% and 6.1% each in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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