Centene announced plans Thursday to sell its Magellan Specialty Health for more than $600 million in cash and stock to administrator Evolent Health.
The sale is part of Centene’s ongoing efforts to jettison its non-health plan businesses.
Evolent will pay at least $400 million in cash and about $200 million in stock for the specialty management service, according to Centene. Depending on Magellan Specialty Health’s performance in 2023, Centene could receive another $150 million in cash and Evolent common stock in 2024. The insurer did not disclose how that performance would be measured.
Centene expects the transaction to close in the first half of 2023, and plans to use the sale proceeds to repurchase stock and reduce debt. Federal antitrust regulators must approve the deal. Centene does not expect the sale to affect earnings in the year following the deal’s close.
The company will continue to use Magellan Specialty Health’s services after the deal closes. Evolent said it expects the five-year partnership to generate $20 million in adjusted earnings before interest, taxes and depreciation by the end of 2024. The administrator said Magellan Specialty Health will generate $250 million in revenue in 2023, and expects the acquisition to immediately boost its earnings.
Centene said it will also expand its use of Evolent’s other oncology, specialty and end-of-life services.
The insurer acquired the specialty management service as part of its $2.2 billion acquisition of parent Magellan Health in January. Four months after the deal closed, Centene announced that it planned to divest Magellan Health’s pharmacy services to Prime Therapeutics, a pharmacy benefit manager launched by Blue Cross and Blue Shield insurers. Now, the insurer is shedding Magellan’s specialty administrative services arm, which provides utilization management to insurers for radiology and musculoskeletal procedures, physical medicine and genetic testing services.
“The transaction is another significant milestone in our ongoing portfolio review and value creation plan,” CEO Sarah London said in a news release. Centene did not immediately respond to an interview request.
The company initiated its value creation plan in November 2021 after its comparatively low margins attracted the attention of activist investor Politan Capital Management, which owns a $900 million stake in the insurer. Politan Capital Management has pushed Centene to overhaul its board of directors and sell subsidiaries.
The insurer on Thursday finalized the sale of its Spanish and central European businesses to French private hospital company Vivalto Santé. Centene did not disclose the sale prices.
Centene sold a majority stake in home health provider U.S. Medical Management to a group of private equity firms for an undisclosed sum in November 2021. The company divested specialty pharmacy PANTHERx Rare to a group of private equity firms in May. Centene said the combined sale of PANTHERx Rare and Magellan Health totaled $2.8 billion.
The insurer is in the process of shedding more than half of its real estate footprint, which it expects will save $200 million annually beginning next year.