Centene CEO confident takeover of Health Net will succeed

CLAYTON, Mo. -- The CEO of health-care company Centene Corp. has a message for those skeptical its acquisition of Health Net will succeed: Wait and see.

Centene shares have fallen 26 percent since the $6.8 billion acquisition of Health Net, a California-based managed-care company, was announced in July.

Centene chief executive officer Michael Neidorff said he believes Centene can squeeze $150 million from Health Net's costs after the deal closes next year, largely by taking over some functions Health Net outsources. But Neidorff said there will not be the "slash and burn" that follows some mergers.

Among other things, Centene runs managed care plans for state Medicaid programs. California has the nation's largest Medicaid population, with Health Net serving one-fifth of that market.

Meanwhile, Health Net has a Medicare Advantage plan Centene can expand to other states. Enrollment in that program, a managed-care option for most people age 65 and over, has more than doubled since 2006.

"Our motive was to move into these other businesses, which helps seal the long-term growth profile of this company," Neidorff said.

Chris Rigg, an analyst at Susquehanna Financial Group in New York, said Centene may be able to expand when other insurers, such as Aetna, have to sell some Medicare Advantage policies to win antitrust clearance for their own mergers.

"In our view, this enables Centene to become a much larger company over a five- to 10-year period," Rigg said.

But investors "see this as a slower growth story than Centene was by itself," said Ana Gupte, an analyst with Leerink Partners in New York. She said part of the negative reaction may be because Centene is a buyer, not a seller.

"Centene was perceived by the market to be a takeout candidate," Gupte said. "Now it looks likely to be a serial consolidator instead."

Neidorff said, "I don't think somebody right now can pay us what we are going to be worth in 12 months, but we understand we have to do what's best for the shareholders," he says.

Despite the recent sell-off, Centene's growth has been good for shareholders. Shares are up 57 percent in the past year, 100 percent in the past two years and 550 percent in five years.