Daniel Loeb's Hedge Fund Wants Centene to Consider Selling Itself

By Cara Lombardo 

Daniel Loeb's Third Point LLC has built a stake in Centene Corp. and wants the health insurer to consider selling itself before spending $15.3 billion on its deal to purchase WellCare Health Plans Inc., according to people familiar with the matter.

While it isn't clear exactly how big Third Point's stake is, it owns at least $300 million in Centene shares, one of the people said. And with derivatives, the hedge fund could have significantly more exposure to Centene's stock-price movement. Centene's market value is roughly $22.8 billion.

Other activist investors including Corvex Management LP and Sachem Head Capital Management have also built stakes in Centene, according to other people familiar with the matter. Corvex and Sachem Head believe Centene might not have considered all alternatives, such as a sale to Humana Inc., before agreeing to buy WellCare, these people said. But Third Point is one of the largest and most closely watched activist hedge funds, and its involvement could hold more sway with Centene shareholders.

Centene agreed to buy WellCare in March in a cash-and-stock deal that amounted to roughly a 32% premium to WellCare's stock price before the deal was announced.

The activists would like Centene to sound out any potential buyers for the company, but they aren't necessarily planning to solicit votes against the WellCare deal, the people said.

Centene said in a statement that its board considers any and all M&A alternatives and believes the WellCare deal is in the best interest of shareholders and will increase growth and profitability.

Centene stock is up 3.7% since the deal was announced, including a 2.6% jump Friday after The Wall Street Journal reported Third Point's stake.

Centene is the largest provider of plans through the Affordable Care Act's marketplaces, and a deal with WellCare would increase substantially its lead as the biggest player in Medicaid managed care while advancing efforts to expand in the Medicare Advantage sector.

Humana, which has a strong Medicare business and has said it is interested in growth in Medicaid, has long been viewed by investors as a potential buyer of Centene. When an analyst asked Humana CFO Brian Kane what the company thinks of the idea at a conference last week, Mr. Kane declined to comment on Centene specifically but said Humana would need to be able to "engage collaboratively" with the other party for any significant deal to work. Some viewed that as evidence that Centene might not be receptive to an approach from Humana.

Managed-care analysts have been skeptical that Humana would mount a hostile bid for Centene. In a proxy document released by Centene in connection with the WellCare deal, the company said it had "various preliminary conversations with representatives of other companies in the managed-care industry" that included "the potential for Centene to engage in business combinations, strategic partnerships or other transactions." The document didn't mention any specific acquisition offers.

Centene has long been led by CEO Michael Neidorff, who is seen as having built up the company from a relatively small player to a dominant force in government managed care. Mr. Neidorff has himself been an aggressive acquirer, buying increasingly large companies to expand Centene's geographic reach and bolster its lines of business.

In February, Centene announced it had extended the contract of Mr. Neidorff, who is chairman as well as chief executive, to 2023. He was also set to remain executive chairman until 2024.

Centene and WellCare shareholders are set to vote on their tie-up June 24. Only Centene shareholders who held shares as of May 8 can vote. Third Point bought the bulk of its position after that date, the people familiar said.

The hedge fund in recent days filed for antitrust clearance, some of the people said, which is necessary if the firm wants to increase its stake and get involved with business decisions at Centene.

Third Point, which has roughly $15 billion under management, is known for taking large positions in companies such as Campbell Soup Co. and Nestle SA and publicly agitating for change.

--Anna Wilde Mathews contributed to this article.

Write to Cara Lombardo at [e-mail]

(END) Dow Jones Newswires

May 24, 2019 17:16 ET (21:16 GMT)

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