Health insurer Centene Corp (CNC, Financial) is going to buy Health Net Inc (HNT, Financial) for $6.3 billion to bolster its position as a manager of government health insurance programs.
Health insurers in the U.S. are looking at mergers as the industry continues to expand, cutting costs and keeping profits after an influx of new business from the Patient Protection and Affordable Care Act, which brought previously uninsured people into the market for the first time. Also subsidies are as a key to bringing insurers new customers and the ruling has removed uncertainty for insurers looking for acquisitions. It could also makes more deal in the health insurance sector: recently Humana Inc (HUM, Financial) signed a deal with Aetna Inc (AET, Financial) for about $37 billion in cash, which is the largest ever deal in the insurance industry; UnitedHealth Group (UNH, Financial) started new contacts with fellow health insurer AET in regards to a merger.
Also Anthem Inc (ANTM, Financial) and Cigna Corp (CI, Financial) are in a new round of talks, after that last monthCI rejected ANTM’s $47 billion offer.
Driven by some important positives the CNC's strengths can be seen in its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income in which its strengths outweigh the fact that the company shows low profit margins. Over the past five years, Centene Corp has achieved record performance and this announcement is a significant next step to increase scale and drive geographic and product diversification.
CNC had a strong start to 2015, and delivered exceptional top and bottom line growth compared to the same quarter of last year.
Some highlights from the first quarter can be as below:
- CNC had 42% growth compared to the first quarter of 2014 which was due in large part to membership growth and this growth helped company to boost the earnings per share.
- The net income increased by 91.0% when compared to the same quarter one year prior, rising from $32.98 million to $63.00 million.
- As one of the largest Medicaid managed-care insurers in the country, nearly doubled its profit in the first quarter as the company continues to win state contracts.
- Centene also quadrupled the number of people who bought its health plansby a rise of 44% increase from the same period last year.
Centene as the largest Medicaid managed-care company, has only minor market share in California, where Health Net has been rapidly growing so the deal gives Centene the biggest market share among private administrators of Medicaid, the federally funded health program for poor people, a bet that the U.S. government will keep playing a larger role in health care. The transaction would give Centene a bigger presence in the California Medicaid program, which is the largest in the U.S. with more than 12 million individuals, and provides an entry into the Medicare market.
Both companies expect to achieve $150 million in synergies which typically means cost cuts or savings from improved operations and to increase their earnings by 10% within two years of the deal's completion in 2016.
In the end Centene is one of only 3 publicly traded companies focused on Medicaid insurance as its Medicare Advantage plans have tripled in the past ten years and are expected to continue growing. Also it continue to be successful in executing on its robust growth pipeline while maintaining operational discipline
Centene Corporation is a multi-line healthcare enterprise, which provides programs and services to the number of under-insured and uninsured individuals. The company provides member-focused services through locally based staff by assisting in accessing care, coordinating referrals to related health and social services and addressing member concerns and questions. It also provides education and outreach programs to inform and assist members in accessing appropriate healthcare services. The company operates in two segments: Medicaid Managed Care and Specialty Services.
