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Stockholder sues to stop WellCare sale to Centene

A WellCare Health Plans stockholder has gone to court to try to stop the $15.3 billion sale of WellCare to Centene. [File photo]
A WellCare Health Plans stockholder has gone to court to try to stop the $15.3 billion sale of WellCare to Centene. [File photo]
Published May 22, 2019

TAMPA — A WellCare Health Plans stockholder has gone to court to try to stop the $15.3 billion sale of WellCare to Centene.

Garrett Seabaugh of North Dakota sued WellCare, its chief executive officer, Ken Burdick and its board of directors, which includes former Louisiana Gov. Bobby Jindal, last week in Hillsborough Circuit Court.

Seabaugh contends that WellCare executives rushed the sale through, undervalued WellCare's stock and did not build any protections into the deal to prevent WellCare shareholders if there's a drop in the price of the Centene shares they would receive in exchange for their WellCare shares. None of that, the suit contends, would keep WellCare executives from getting a big payday if the deal goes through. It notes that Burdick, WellCare's CEO since 2015, stands to receive $46 million in cash and equity if he's terminated under certain circumstances. (In March, Burdick said he was staying on as part of the merged company's senior management team).

"While the proposed transaction is not in the best interests of WellCare stockholders, it will produce lucrative benefits for the company's officers and directors," according to the suit, which was filed for Seabaugh by Coral Springs attorney Jason S. Weiss.

"While we generally do not comment on pending litigation, we believe this lawsuit is without merit, and we have no further comment," Wellcare executive vice president and chief public affairs officer Rhonda Mims said in a statement..

As proposed, WellCare shareholders would receive 3. 38 shares of Centene stock plus $120 in cash for each share of WellCare stock they hold. When the deal was announced March 27, WellCare executives said those terms represented a premium of 32 percent over WellCare's closing price the previous day.

'A UNIQUE OPPORTUNITY': Centene to buy Tampa-based WellCare, creating powerhouse in Medicaid, Medicare and Obamacare

But Seabaugh, who is seeking to make his lawsuit a class-action case, contends that the terms of the sale result in an implied value of $305.59 per share based on Centene's closing stock price of $54.85 per share on March 26. That's considerably less, he said, than the $324.99 per share that WellCare's stock has traded at within the last six months. It's also less than a target price for WellCare stock of $330 per share set by analysts at BMO Capital Markets in February, and a target price of $365 per share set last October by analysts at Evercore ISI. (Friday morning, WellCare stock was trading for $272.78 per share.)

Meanwhile, Seabaugh contends, there's nothing in the terms of the deal to protect WellCare shareholders if the price of Centene stock drops. They get 3.38 shares of Centene, no matter what. Friday morning, Centene was trading at $55.46 per share. That's higher than the $54.85 share price on March 26. But Seabaugh's suit points out that Centene shares have traded for as little as $47 a share in April.

"The consideration payable to WellCare stockholders is not insulated from fluctuations in Centene's stock price, and shareholders are left in the precarious position of not knowing whether the consideration payable to them will decline further," Seabaugh's suit says.

Moreover, Seabaugh says WellCare stockholders will see their ownership interest in the merged company diluted to just 29 percent of the whole. As proposed, the merged company's board would consist of nine board members from Centene's board and two from WellCare's board.

WellCare, with offices about three miles north of Tampa International Airport, currently manages health care for about 6.3 million patients with Medicaid, Medicare Advantage or Medicare prescription drug plans. More than 4.1 million of those patients are covered by Medicaid, the federal health plan for the poor, and most live in Florida, Illinois, Michigan, Georgia, Kentucky, Missouri, Arizona and New York.

WellCare has 13,000 employees nationwide, with a staff of 4,500 in Tampa, many of them in well-paying jobs as nurses, physicians or information technology professionals. The merged company would be based in St. Louis, but executives say it would retain a significant presence in Tampa.

The merged company would have an estimated 22 million members across all 50 states, more than 12 million in Medicaid members and about 5 million in Medicare. Executives expect the combined company would have $97 billion in annual revenues, with 65 percent coming from Medicaid and 15 percent each from Medicare and coverage provided through the Affordable Care Act.

WellCare and Centene say the merged company would be more diverse and better able to serve its customers and compete more effectively.

But two weeks ago, the American Hospital Association urged the anti-trust division of the U.S. Department of Justice to investigate the proposed merger and take steps to protect consumers because it said the deal "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."

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Contact Richard Danielson at rdanielson@tampabay.com or (813) 226-3403. Follow @Danielson_Times

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