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The $17B WellCare-Centene deal would have been larger but for this one thing

Margie Manning

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WellCare employees gathered outside the corporate headquarters in Tampa.

WellCare Health Plans Inc. and Centene Corp. started talking about a deal between the companies seven months before they announced in March that Centene would buy WellCare in a transaction valued at $17.3 billion.

The deal likely would have been larger, had not the stock market tanked in October 2018.

Initial talks about joining forces began on Sept. 4, the day after Labor Day. But key stock indexes such as the Nasdaq and the S&P 500 saw their biggest drops in years in October, according to CNN. That spooked top executives, who decided on Halloween to end their discussions at that time, a May 3 filing with the U.S. Securities and Exchange Commission said.

Talks started up again in January, according to the prospectus, which gives a detailed account of when executives from Centene (NYSE: CNC), a managed health care provider, met with executives at rival managed care provider WellCare (NYSE: WCG). WellCare, based in Tampa, is the area’s third-largest public company based on revenue and one of the area’s largest employers.

The prospectus discloses where many of those conversations took place, with sites ranging from the J.P Morgan Healthcare Conference in San Francisco, to Centene’s home turf in St. Louis, to an undisclosed location in Naples, Florida.

It also details how the two companies went back and forth on terms until they agreed to a final price —  a fixed exchange ratio of 3.38 shares of Centene common stock and $120 in cash for each share of WellCare common stock. Based on Centene’s closing price on March 26, just before the deal was announced, the deal values each WellCare share at $305.39.

That’s down from Centene’s initial offer of about $350 a share, included in a Sept. 15 non-binding indication of interest. That offer was made 11 days before Michael Neidorff, chairman and CEO of Centene, first talked about a deal with Christian Michalik, chairman of WellCare.

The WellCare board said that offer was “not sufficiently attractive” and Centene upped its offer to $370 a share on Oct. 12.

During a meeting in St. Louis, WellCare pushed for $380 a share on Oct. 18 and that price was still on the table when Neidorff called Michalik on Oct. 31 to discuss the significant decline in the market. WellCare’s stock had dropped about 10 percent since Oct. 18 and Centene’s stock was down about 7 percent. At those prices, they agreed that the companies were unlikely to strike a deal and they called off the talks.

In early January, Neidorff and Michalik met at the J.P. Morgan conference in San Francisco, where Neidorff said he was still interested in buying WellCare. That kicked off a series of phone calls and an in-person meeting between executives from both companies in Naples to hammer out a new price and terms. Meetings also were held in New York, at the offices of Kirkland & Ellis LLP, WellCare’s law firm, and Skadden Arps Slate Meagher & Flom, the law firm for Centene.

Among the items they focused on was a $65 million retention program, so WellCare workers would stay on the job until the deal closed and afterwards.

The price and terms they eventually agreed to represented about a 32 percent premium for WellCare stock, based on the closing stock price of $231.27 on March 26, the day both companies’ boards approved the deal. It was announced early March 27.

WellCare’s stock price has since rebounded, closing Friday at $261.50 a share.

Both companies’ shareholders will vote on the deal at separate meetings. The dates for those meetings have not yet been determined.

The WellCare board also approved a special grant of restricted stock units with a grant date fair market value equal to approximately $500,000 to Michalik, the filing said. Those stock units will vest when the deal closes.

Ken Burdick, WellCare’s CEO, and Drew Asher, executive vice president and chief financial officer, are expected to join the senior management team at Centene after the deal closes, likely in the first half of 2020.

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