Centene to Acquire Magellan Health in $2.2 Billion Deal

(Bloomberg) -- Insurer Centene Corp. agreed to buy Magellan Health Inc., in a transaction valuing the target company at $2.2 billion, to expand further into mental-health care.

Centene will pay $95 a share in cash, according to a statement on Monday, or 15% above Magellan Health’s closing price on Thursday. The purchase will be primarily funded with debt, and JPMorgan Chase & Co. has provided a bridge financing commitment.

Magellan climbed as much as 12% to $92.80 as of 9:38 a.m. in New York. Centene gained as much as 1.2%.

Centene is a top seller of government-sponsored health plans such as Medicaid and Medicare, and the combination will help it better integrate behavioral health into offerings, executives said. Magellan manages specialty care, including treatments for mental health and substance use disorders, for insurers and other customers.

“There is a critical need for a fundamentally better approach to supporting people with complex, chronic conditions through better integration of physical and mental health care” Michael F. Neidorff, Centene’s chief executive officer, said in the statement. “This has become even more evident in light of the pandemic.”

Triple Costs

Patients’ medical costs can double or triple when combined with behavioral health conditions, Neidorff said on a call with analysts. Health plans and employers in the past turned to entities like Magellan to manage behavioral health separately from medical care, carving out a portion of insurance premiums for that purpose.

More recently, the industry has promoted integrating medical, behavioral, and pharmacy care, with one entity managing all three benefits. Insurers have moved to consolidate medical plans with pharmacy benefit managers and other specialty health benefits businesses. Anthem Inc. last year purchased a competitor to Magellan, Beacon Health Options.

Neidorff said in an interview that he envisions pairing behavioral and medical interventions together more seamlessly. For example, when a patient is newly diagnosed with diabetes or cancer, they might get referred to a psychologist as well, he said.

“I want that family to have access to the psychological help they need to deal with it,” he said. “In the longer term, it reduces costs.”

Magellan CEO Ken Fasola will stay on, and the unit will continue to operate independently within Centene after the transaction, the companies said.

Centene has increased revenue from $23 billion in 2015 to about $111 billion expected in 2020 through a series of large health plan acquisitions. Last week the company closed the acquisition of Pantherx, a specialty pharmacy focused on rare diseases.

The Magellan deal is expected to close in the second half of 2021, the companies said. It will add slightly to Centene’s earnings in the first full year, Neidorff said.

Announced on the first business day of the year, the deal picks up where 2020 left off in terms of mergers. Health-care companies announced $362.7 billion of deals last year, data compiled by Bloomberg show. In December, AstraZeneca Plc agreed to acquire rare-disease specialist Alexion Pharmaceuticals Inc. for $39 billion deal in the industry’s biggest transaction of 2020.

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