Activist Hedge Fund Third Point Tries To Merge Humana and Centene

Daniel Loeb realized his dreams weren’t going to come true after the usually taciturn health insurer, Humana, filed a SEC statement indicating they would not be merging with Centene. Loeb runs Third Point, an activist hedge fund firm that has its sights set on Centene selling itself off.

Centene’s long-serving CEO, Michael Neidorff, has other ideas and they include the $15.3 billion acquisition of health-insurer WellCare Health. Since he started with the health insurer in 1996, the CEO has grown the company from 40,000 covered members in 1996 to 12 million across 28 states. The company’s aggressive expansion strategy eventually did pay off; they became the biggest Medicaid managed-care provider in the United States after their $6 billion acquisition of Health Net in 2016.

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Conversely, Loeb and other activist investors – Corvex Management LP and Sachem Head Capital Management – with stakes in the health insurance company are not convinced this is the best course of action. People familiar with the situation stated they have strongly urged Centene to reconsider

While it’s unclear how big Third Point’s stake in Centene is, sources close to the situation estimate the firm owns $300 million in the health insurer’s shares. When combined with derivatives, the hedge fund could be significantly impacted by stock-price fluctuations. Currently, Centene is valued at $22.8 billion.

It’s thought that these firms felt it was important for Centene to explore buyout options before the company moved forward with an acquisition of their own. Rumors abounded that the hedge funds were attempting to head off the merger and counter by courting potential buyers like Humana. Hand-delivered invitation aside, Humana passed on the corporate combination and dashed the dreams of hedge fund hopefuls invested in Centene.

“[T]he company will not make a proposal to combine with Centene as an alternative to Centene’s proposed transaction with WellCare Health Plans, Inc.,” Human wrote, who went on to say it was making a rare exception to its policy of not disclosing details on possible mergers “in light of significant investor speculation and persistent market rumors.”

In a prepared statement, Centene asserted their board considers all M&A alternatives and believes that the WellCare merger represents the best interests of shareholders and will increase growth and profitability. A WellCare purchase could bolster its part of the Medicaid Advantage market and contribute to the company’s already impressive lead with the government-funded managed care sector.

“This is the right combination for our shareholders,” Neidorff said in a Yahoo Finance interview. “WellCare is a well-run company. These are two great companies coming together in an important sector that would just create a better environment for everybody. It’s the right move.”

Despite Neidorff’s almost gleeful willingness to double down on the WellCare deal, concerns still remain as antitrust concerns have been raised by hospitals. Both companies disclosed last week that federal regulators with the antitrust division have been in touch with requests for more information about the transaction, according to a SEC filing. The boards from both companies have given the deal their signed support and shareholders are set to vote on the potential acquisition on June 24.

As for Loeb’s Third Point and his almost legendary abilities to upend corporate leadership – challenge accepted.