Centene to buy Tampa-based WellCare in $17B deal, creating powerhouse in Medicaid, Medicare and Obamacare

TAMPA — WellCare Health Plans, which has been on a multi billion-dollar acquisition spree over the last two years, is itself being purchased by St. Louis-based Centene Corp. for nearly $15.3 billion in cash and stock, the companies announced Wednesday.

With a stock market value of nearly $13 billion, WellCare is the largest of any public company based in the Tampa Bay area. WellCare shareholders will receive 3.38 shares of Centene stock, plus $120 in cash, for each share of WellCare stock they hold. That's a premium of about 32 percent on WellCare's closing stock price on Tuesday.

From its headquarters about three miles north of Tampa International Airport, WellCare manages health care for about 5.5 million patients with Medicaid, Medicare Advantage or Medicare prescription drug plans. More than 3.9 million of those patients are covered by Medicaid, the federal health plan for the poor, and most live in eight states: Florida, Illinois, Michigan, Georgia, Kentucky, Missouri, Arizona and New York.

WellCare, No. 170 on the Fortune 500, has 13,000 employees nationwide. In Tampa, it has a staff of 4,500, many working in well-paying jobs as nurses, physicians or information technology professionals.

After the announcement, the companies talked about the potential to realize up to $500 million annually in "cost synergies." Executives did not say whether that means cuts or other changes, but a WellCare spokeswoman said Centene "is committed to maintaining a substantial presence in the Tampa Bay area."

"WellCare will operate in a business as usual capacity," WellCare's Kimbrel Arculeo said in an email to the Tampa Bay Times.

Let's hope so, said Tampa Mayor Bob Buckhorn.

"I was as surprised as everybody, but am cautiously optimistic that their community presence won't change," Buckhorn said. "They're a great company. They're a corporation that believes in giving back to the community. And we look at them as one of our own. Hopefully this transaction won't change that."

Economic development leaders agreed.

"It is important to the whole region to keep a company like that here," Greater Tampa Chamber of Commerce president and CEO Bob Rohrlack said.

"We stand ready to work with WellCare executives to help mitigate any potential impact on their local workers," Tampa Hillsborough Economic Development Corp. president and CEO Craig Richard said in a statement. "We look forward to getting to know the team at Centene and helping them get dialed into the Tampa community."

The sale is the latest chapter in the short but storied history of WellCare, one of the bay area's most successful homegrown companies.

WellCare was established in 1985 by a small group of local doctors and owned in the 1990s by well-known cardiologist, entrepreneur and philanthropist Dr. Kiran Patel. He sold it in 2002 to a New York investment group headed by Todd Farha and financier George Soros. It went public in 2004.

In 2007, more than 200 agents from the FBI and other agencies raided WellCare's Tampa headquarters, kicking off a six-year investigation into how the company handled state and federal money earmarked to pay for behavioral care for the poor. Farha, the CEO at the time, and two other executives were found guilty of health care fraud. The company paid $227.5 million to settle cases brought by state and federal agencies.

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Current CEO Ken Burdick joined the company in 2014 and has since worked to grow WellCare's business and reach. Last year, the company made two big acquisitions, paying $2.5 billion to acquire Meridian Health Plans in the Midwest and adding 2.2 million new members when it took over Aetna's Medicare Part D prescription drug plan.

Now the Centene deal would create a powerhouse medical provider in Medicare, Medicaid and the Affordable Care Act's health insurance marketplaces, with about 22 million members across all 50 states. It would have more than 12 million Medicaid members and approximately 5 million Medicare members, including the Medicare prescription drug plan. It projects $97 billion in annual revenues, with 65 percent of the revenues coming from Medicaid and 15 percent each from Medicare and Obamacare.

ALSO READ: WellCare's $2.5 billion purchase of Meridian makes it the Tampa Bay area's biggest company by market cap

Burdick said joining Centene will create a more competitive, diversified company that can better deliver "integrated, high-quality, cost-effective services for our members and government partners."

"Neither company needed to do this," Burdick told stock analysts during a conference call on Wednesday. "Both companies were performing exceedingly well, growing (with) strong financial performance. But this was a unique opportunity to bring them together to create something much stronger."

Of the two, Centene is the bigger player in the Obamacare market, and Wednesday's announcement came a day after the Trump administration indicated that it will not defend the Affordable Care Act in a Texas court case. But executives said the expected benefits of the deal outweigh potential changes to the law, which Centene's CEO believes is in a good position to survive even if the case goes to the Supreme Court.

If the case does go to the Supreme Court, "the conventional wisdom — not just ours, but others' that follow this — is it's not going to be a 5-3 (vote) to overturn (the Texas court's ruling that Obamacare is unconstitutional), but could well be a 7-2 to overturn," Centene chairman and CEO Michael F. Neidorff told analysts. "So we're comfortable with it. We have always maintained you base your decisions at a point in time on the facts as they're known today."

WellCare's stock price rose 12½ percent to $260 a share Wednesday, with more than 10 times as many shares changing hands as on an average day. Once the transaction goes through, Centene Corp. shareholders will own about 71 percent of the business, with WellCare shareholders owning approximately 29 percent. Once WellCare's debt is included, the transaction has a total value of $17.3 billion.

The combined company will be based in St. Louis, with nine board members from Centene's board and two from WellCare's board. Neidorff will serve as chairman and CEO of the combined company after the deal closes. Burdick said he and WellCare executive vice president and chief financial officer Drew Asher are "committed to being a part of this exciting combination" as members of the senior management team, though their exact roles were not detailed Wednesday.

The transaction, approved unanimously by both companies' boards of directors, is expected to close in the first half of 2020. It still needs approval from regulators and Centene and Wellcare Health Plans shareholders.

This report includes information from the Associated Press. Contact Richard Danielson at rdanielson@tampabay.com or (813) 226-3403. Follow @Danielson_Times

WellCare Health Plans at a glance

Headquarters: 8725 Henderson Road, Tampa

Revenues (2018): $20.4 billion

Employees in Tampa: 4,500

In Florida: 5,800

Nationwide: 13,000

Offices statewide: 23

Source: WellCare Health Plans