Los Angeles-based managed care provider Health Net is being acquired by Centene Corp. in a deal valued at $6.8 billion. The deal could mean job losses at Health Net offices in Rancho Cordova, where more than 2,400 of the Woodland Hills-based health insurer’s employees work.
The deal, which is expected to close by early 2016, will add Health Net’s Medicare platform to Centene’s existing Medicaid programs and create a managed care firm with more than 10 million members nationwide and approximately $37 billion in revenue.
Under the terms of the deal, Health Net shareholders will receive 0.622 shares of Centene common stock and $28.25 in cash for each share of Health Net stock. Upon completion of the acquisition, Centene shareholders will own 71 percent of the combined company, with Health Net shareholders holding 29 percent.
“Over the past five years, Centene has achieved record performance and today’s announcement is a significant next step in our strategy to increase scale and drive geographic and product diversification,” Michael Neidorff, Centene’s chairman, president and CEO, said in a statement.
The deal will strengthen Centene’s presence in the California Medicaid program, which is the country’s largest with more than 12 million individuals. It also will allow Centene to expand in Medicaid and Medicare programs in other western states such as Arizona, Oregon and Washington. The acquisition also will allow Centene to expand its offerings in government programs such as Medicare, TRICARE and the U.S. Department of Veterans Affairs.
Centene plans to fund the cash portion of the acquisition through a combination of existing cash on hand and debt financing. Wells Fargo is providing $2.7 billion of financing commitment.
Allen & Co. LLC and Evercore are serving as financial advisers to Centene, with Skadden, Arps, Slate, Meagher & Flom LLP serving as legal counsel. J.P. Morgan Securities Inc. LLC is serving as financial adviser to Health Net with Morgan, Lewis & Bockius LLP serving as legal counsel.
The deal could mean job losses at Health Net offices in Rancho Cordova, where more than 2,400 of the Woodland Hills-based health insurer’s 8,300 employees work. Another 2,500 jobs in Los Angeles could be in jeopardy, too. The combined company will be based in St. Louis — where Centene’s headquarters is located — with operations around the country.
Almost 900 local jobs are already in limbo as they shift to Cognizant Technology Solutions Corp., a longtime vendor that inked a seven-year agreement with Health Net in November. Twenty-seven employees will lose their jobs by July 10, but 878 are expected to get job offers from Cognizant over a two-year transition period.
Another 800 local Health Net jobs could be on the line in the next round of federal military health care contracts. The U.S. Department of Defense plans consolidation of the Tricare program into two regions from three. Health Net currently oversees care for about 2.8 million people in the North region, which includes all or portions of 22 states and the District of Columbia. In the next round, the North with be consolidated with the South into one region in the East, but leave the West region intact. Bids were due June 23.
A total of about 1,700 Health Net employees work on the Tricare business nationwide, including 800 at program headquarters in Rancho Cordova. It’s unclear whether Centene — if successful with a new Tricare contract — would still run it out of the Sacramento area.