Medicaid Mergers: Could Centene Be Next?

Wall Street is expecting more mergers among Medicaid providers and consider St. Louis-based Centene Corp. (CNC) as the next likely takeover target.

“Centene could make a lot of sense to a strategic acquirer, given its large scale, margin upside and favorable growth prospects,” Michael Wiederhorn, a managing director and senior analyst at Oppenheimer, wrote in a research note on Wednesday.

According to a Deal Book article, Thomas A Carroll, a managing director at St. Louis-based investment firm, Stifel Nicolaus and Co. Inc, said large Medicaid providers such as Centene, Amerigroup, WellPoint and Molina Healthcare will be consolidated into larger organizations.

He says a number of large healthcare firms are looking to expand into Medicaid.

“The growth prospects for Centene and the Medicaid industry are highly compelling,” he wrote.

Carroll said Aetna (AET) and Humana (HUM) are likely potential buyers of Centene. If Aetna purchased Centene it would become the nation’s third largest medicaid provider, but Centene won’t come cheap.

According to Deal Book if a similar multiplier is applied to Centene as Amerigroup the company would sell for $2.6 billion.

“In theory,” Carroll said in the Deal Book article, “I wholeheartedly believe the Medicaid H.M.O.’s will eventually get consolidated, but I just don’t know what the time frame is.”

Earlier this month, WellPoint Inc. (WLP) agreed to purchase Amerigroup Corporation for $4.9 billion.

“The acquisition of Amerigroup expands our scale and further diversifies our business mix by deepening our investment in the high growth Medicaid marketplace,” Wayne S. DeVeydt, Well Point Executive Vice President and Chief Financial Officer said in a July 9 statement. “We believe the acquisition is not only strategically important, significantly enhancing our future revenue and earnings per share growth opportunities, but will also provide an attractive return for our shareholders.”


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