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Centene completes Health Net acquisition

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Centene Corp. says it is moving ahead with well-developed plans for combining Health Net Inc. with its own operations.

Centene (NYSE:CNC), a St. Louis-based company, has closed on a deal to acquire Health Net, Woodland Hills, Calif., for a combination of cash and stock that gave the deal a value of about $6 billion.

Health Net’s stock no longer trades on the New York Stock Exchange.

Best known as a managed Medicaid company, Centene has talked about being happy with the performance of the plans it’s sold through the Patient Protection and Affordable Care Act (PPACA) public exchange system.

See also: Centene likes its PPACA exchange margins

Meanwhile, Health Net has been providing commercial coverage, Medicare coverage and TRICARE plan administration services.

The new combined company provides or administers major medical coverage for about 10 million people. When the companies first announced the deal, in July 2015, they said it would give Health Net a value of about $6.8 billion.

See also: Aetna agrees to buy Humana for $37 billion

Dave Jones, the California insurance commissioner, said Tuesday, in an explanation of why he approved the deal, that Health Net needs Centene’s resources. ”Health Net Life has had declining market share and declines in covered lives in its commercial health insurance business,” Jones said in a statement about the approval. Rejecting the deal could have left Health Net in an unsustainable position and forced it out of the market, Jones said.

When Centene announced the deal, it said it would be moving the headquarters of the combined company in St. Louis, with Michael Neidorff, Centene’s chairman and president, serving as the chairman and president of the combined company, and Jay Gellert, the president of Health Net, helping to achieve a smooth transition.

In the announcement of the deal closing, Centene says Gellert and James Woys, who has been Health Net’s chief financial and operating officer, have both entered into consulting agreements with Centene.

The directors of Centene will also be the directors of the combined company, but Centene is adding one of Health Net’s board members, Vicki Escarra, to its own board. Escarra, who is now the chief executive officer of Opportunity International, a charity that fights poverty, has been the chief marketing officer at Delta Air Lines.

Centene says teams from Centene and Health Net have been working on an integration plan for eight months.

Brian Wright, a securities analyst with Sterne Agee CRT, notes in a comment on the deal close that the approval terms Jones negotiated require Centene to continue to offer Health Net products through the Covered California public exchange, offer sufficient provider networks in California, improve the quality of care, invest $200 million in establishing a California call center, invest $30 million in low- and moderate-income California neighborhoods, and maintain an adequate distribution channel in California.

“We find it interesting that there was no employment count requirement in [California] based on the press release issued by the [California Department of Insurance],” Wright writes.

See also:

3 weird ways PPACA lifeboat programs may affect insurers

Exchange issuer is waiting for numbers


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