Last night after the bell, healthcare company Centene (CNC 96.62, +5.74 +6.3%) announced it would acquire substantially all of the assets of Fidelis Care for $3.75 billion, subject to certain adjustments. CNC signed a definitive agreement under which Fidelis Care will become its health plan in New York State. On a combined basis, CNC and Fidelis Care served about 13.8 million members as of June 30, 2017. Shares now trade to a split-adjusted all-time high in afternoon action.
As a bit of background, CNC is a multi-line healthcare company which also provides healthcare services to groups and individuals delivered through commercial health plans. It operates local health plans and offers a range of health insurance solutions. The company also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health management, care management software, correctional healthcare services, dental benefits management, in-home health services, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.
Fidelis Care is a health plan driven by a culture of excellence and discipline, offering quality, affordable health insurance coverage for children and adults of all ages and at all stages of life through Medicaid, Qualified Health Plans, Child Health Plus, Essential Plan, as well as Medicare Advantage, Dual Advantage and Managed Long Term Care.
Now, getting back to the deal, as mentioned the price agreed upon came in at $3.75 billion. With this acquisition, CNC expects to generate 2018 pro-forma total revenues of over $60 billion assuming a January 1, 2018 closing date, solidifying its position as the largest Medicaid managed care organization in the country. Subject to market conditions, the company intends to fund the purchase price with $2.3 billion of new equity, including share consideration, and $1.6 billion of new long-term debt.
The transaction is expected to generate immediate accretion to Year 1 GAAP earnings per share, high single-digit and low- to mid-teens percentage accretion to adjusted earnings per share in Year 1 and Year 2, respectively. The company expects to achieve $25 million of pre-tax net synergies in Year 1 and $100 million run-rate synergies beginning in Year 2. Synergies will come from areas primarily attributable to reduced medical costs through the use of CNC’s systems and medical management programs, integration of a range of specialty services and efficiencies in G&A.
The combined company anticipates driving profitable growth by leveraging CNC’s local approach that provides members access to high quality and culturally sensitive healthcare services. The transaction will provide CNC with a leadership position in New York's Medicaid and other State sponsored businesses, Medicare Advantage and dual eligible programs, as well as the Qualified Health Plan and Essential Plan.
The transaction is expected to close in the first quarter of 2018, subject to various closing conditions and receipt of New York regulatory approvals, including approvals under the New York Not-for-Profit Corporation Law.