Centene’s $17.3 billion bid to purchase fellow insurer Wellcare would create the country’s fourth-largest insurer and a leader within the government payer segment.
However, new rumors about Humana’s interest in Centene as an acquisition target could throw a wrench in those plans. A report published in Street Insider said that Humana is interested in a “friendly takeover” of Centene if the company’s deal with Wellcare falls through.
Adding fuel to the fire is a report in Reuters which cited unnamed sources who said that two hedge funds with ownership stakes in Centene – Corvex Management LP and Sachem Head Capital Management – are looking to possibly oppose the Wellcare acquisition in favor of a deal with a larger player like Humana.
For its part, Centene says it is moving forward on Wellcare acquisition as part of a pathway to strengthen its position in the Medicaid and Medicare markets, where it would rank first and fourth respectively, by membership.
“We remain as committed to our combination with WellCare today as we did when we announced it on March 27,” Centene spokeswoman Marcela Hawn said.
“The addition of WellCare is an important step in our growth strategy and will drive value for our collective shareholders over the short and long-term. We look forward to working through the transaction process so we can bring the benefits of our combined company to all of our stakeholders.”
Which is not to say the Centene-Wellcare combination doesn’t have its own barriers. Antitrust regulators have increasingly started to crack down on M&A activity within the insurance segment, especially among insurers with overlapping geographic footprints like Centene and Wellcare.
The American Hospital Association has called for regulator review on the deal which the trade group says “threatens to reduce competition in delivery of Medicaid Managed Care and Medicare Advantage services to tens of millions of consumers across broad swaths of the country.”
Humana’s potential interest in Centene is partially driven by its desire to bolster its own efforts in the Medicaid space ahead of potential competitors like Cigna and CVS Health. The insurer is already the second largest in the Medicare Advantage market behind UnitedHealthcare.
Last year, Humana was one of nine health plans which won major Medicaid contracts in Florida and is currently looking at expanding its Medicaid footprint across Louisiana and Texas as well.
In an earnings call last week, Humana CEO Bruce Broussard spoke about the company’s interest in the Medicaid space and outlined the “wonderful” growth the company has seen in Florida.
In response to an analyst question about the Centene-Wellcare deal, Broussard said the company was “confident in our organic direction,” but that did not preclude possible M&A activity.
“We are always looking at the market and the M&A side like no different than we have in the past. So we continue to believe what our strategy is, is very, very exciting and I think we’ll be very competitive in the future,” Broussard said.
Analysts have expressed skepticism about a Humana deal with Centene coming together due in part to Centene’s reluctance to sell to a larger insurer, which would necessitate a larger premium price. In a research note, Cowen analyst Charles Rhyee highlighted Long Beach, California-based Molina Healthcare as a “compelling acquisition target” for Humana.
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