WOW….. Centene is ponying up $2.2 billion to acquire Magellan Health!
This comes on the heels of Centene’s recently announced acquisition of PANTHER Rx only a couple of weeks ago. In the Anton Rx Report we sent on December 22nd we learned about Centene’s acquisition spree over recent years which explains a lot of their strategy.
With growing concerns about the future, PBMs are turning towards consolidation and acquisition. You need not go further than the CIGNA /Express Scripts acquisition to realize that big changes have already transpired in the industry. It was no surprise that in April 2019 Magellan was rumored to be courted by both United Healthcare (Optum) as well as Aetna (itself acquired by CVS).
Centene was ranked #42 in the Forbes 500 in May of 2020 while Magellan slipped in at #432. So, let’s look at why Magellan is a good fit for Centene and where Magellan’s specialty pharmacy business can further bolster this critical business segment.
Magellan is an interesting company.
It acquired ICORE in June of 2006 for more than $200 million as its first foray into the world of pharmacy. That was a smart move as the former ICORE unit has since contributed significantly to Magellan’s bottom line with a solid book of specialty pharmacy business. In June of 2009 Magellan acquired Coventry’s First Health Services, a small PBM.
Magellan must have liked what it saw because in the fall of 2011 Magellan announced a rebranding of the ICORE unit into Magellan Pharmacy Solutions (now Magellan Rx), and also announced that they were coming to market with a full service PBM product to run with the big dogs in the PBM pack. To bolster their position Magellan then acquired Partners Rx for $100 million adding 300,000 covered lives in the fall of 2013. Then in May 2014, Magellan acquired CDMI for over $300 million. After that, Magellan followed with the purchase of two other small PBMs…4D in 2015 ($55 million), and Veridicus in 2016 ($74.5 million). Since then, the pharmacy unit has grown but, no surprise, has faced very stiff competition.
As we know, PBM survival requires lives on the table —- ever bigger numbers — to negotiate with pharmacy chains and manufacturers. So, acquisitions (especially accretive) make great sense. PBMs need to shore up margin per member….. especially if other revenue streams – like rebates – fade away.
Magellan also cut its teeth on specialty pharmacy management under not just the pharmacy benefit but also under the medical benefit. This experience makes Magellan all the more attractive to Centene. But as with rebates, the competition within medical pharmacy management is increasing significantly.
Magellan is also diversified. It has a long history of behavioral health and radiology management services which would be icing on the Centene already tasty healthcare cake.
Centene Signs Definitive Agreement to Acquire Magellan Health
Acquisition will broaden and deepen Centene’s whole health capabilities, while establishing a leading behavioral health platform at a critical time
Combined platform to deliver better health outcomes for complex populations through the integration of physical and mental health care
Important addition to Centene’s Health Care Enterprises, under which Magellan Health will continue to operate independently
Focus on creating next generation behavioral health platform, aligned with Centene’s technology strategy with additional growth opportunities in specialty care and pharmacy
Magellan Health CEO and management to remain in leadership roles, bringing additional talent to Centene and providing continuity
Value creation for shareholders through cost synergies and new growth opportunities
ST. LOUIS and PHOENIX, Jan. 4, 2021 /PRNewswire/ — Centene Corporation (NYSE: CNC) and Magellan Health, Inc. (NASDAQ: MGLN) today announced that they have entered into a definitive merger agreement under which Centene will acquire Magellan Health for $95 per share in cash for a total enterprise value of $2.2 billion. The transaction, which was unanimously approved by the Boards of Directors of both companies, will broaden and deepen Centene’s whole health capabilities and establish a leading behavioral health platform. The combined platform lays the foundation by which the company will continue to invest and innovate for its members, enabling improved health outcomes and faster, diversified growth.
The combination brings together the companies’ complementary capabilities in behavioral health, specialty healthcare and pharmacy management. As a result of the transaction, Centene will establish one of the nation’s largest behavioral health platforms across 41 million unique members with enhanced capabilities to deliver better health outcomes for complex, high-cost populations. Magellan Health will also add to Centene’s leadership in government sponsored healthcare, bringing 5.5 million new members on government-sponsored plans. Magellan Health also provides specialty health services for 18 million third-party customer members in addition to Centene’s own members. Furthermore, the transaction adds 2 million PBM members and 16 million medical pharmacy members, enhancing the scale of Centene’s pharmacy platform with leading capabilities in specialty drug management. As part of Centene’s Health Care Enterprises, Magellan Health will continue to independently support its existing customers and pursue growth opportunities. In addition, the transaction will create attractive shareholder returns through enhanced service capabilities, cross-sell opportunities……………………………