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Centene Announces Its Acquisition of Health Net

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Centene–Health Net deal

On July 2, 2015, Centene (CNC) announced the acquisition of Health Net (HNT) for a combination of cash and shares amounting to $6.8 billion, including the assumption of Health Net’s $500 million debt. Centene has valued Health Net’s outstanding shares at $78.57 per share.

The deal forms a part of the strong consolidation wave in the US health insurance industry. A day after the announcement of the Centene–Health Net deal, Aetna (AET) also announced the acquisition of Humana (HUM) for a consideration of $37 billion, making it the highest-priced deal in the industry.

The above graph shows the 2014 and estimated 2015 revenues of major health insurance players. It is expected that the Centene–Health Net combined entity should earn $37 billion in 2015, and it should become a strong competitor for health insurance players such as Cigna, Anthem, Aetna, and Humana.

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About Centene and Health Net

With a market capitalization of $8.35 billion, Centene is one of the best-performing stocks in the US health insurance industry. With its headquarters in St. Louis, Missouri, the company provides health benefits and services to about 4.1 million people in 22 states.

Centene earns about 89% of its total revenues from government-subsidized health insurance programs such as Medicaid, Children’s Health Insurance Program (or CHIP), long-term care, foster care, dual-eligible individuals, and the Aged, Blind, or Disabled (or ABD) program. These programs mainly serve the low-income and disabled population.

With its headquarters in Woodland Hills, California, Health Net is a health insurance player with a market capitalization of $5.1 billion. The company offers health insurance services to ~6 million people in the US and has operations mainly concentrated in the West. Compared with Centene, Health Net has a more diversified customer base spread across programs such as Medicaid and Medicare, as well as privately sponsored customers.

Instead of investing directly in Centene stock, you can get a diversified exposure to the health industry by investing in the iShares Dow Jones US Healthcare ETF (IYH). IYH holds 0.29% in the health insurance company.

In the next part of this series, we will look at why Centene is interested in Health Net.

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