(Reuters) – WellCare Health Plans Inc said on Tuesday it would buy Meridian Health Plans of Michigan and Illinois for $2.5 billion in cash to become the top Medicaid provider in those states.
The deal will help WellCare add about 1.07 million Medicaid members in Michigan and Illinois and includes the acquisition of pharmacy benefit manager MeridianRx, WellCare said in a statement.
“This transaction strategically aligns with our focus on government-sponsored health plans…,” WellCare Chief Executive Officer Ken Burdick said in a statement.
Meridian’s businesses are expected to generate more than $4.3 billion in total revenue in 2018, WellCare said.
The deal comes as healthcare payers and pharmacies are responding to a shifting landscape, including changes in the Affordable Care Act, rising drug prices and the threat of competition from online retailers such as Amazon.com Inc.
In December, U.S. drugstore chain operator CVS Health Corp agreed to buy U.S. health insurer Aetna Inc for $69 billion, seeking to tackle soaring healthcare spending through lower-cost medical services in pharmacies.
U.S. retailer Walmart Inc was reported to have been in early-stage talks in March with health insurer Humana Inc about developing closer ties.
The WellCare-Meridian deal would add 40 to 50 cents per share to WellCare’s adjusted earnings in 2019, 70-80 cents per share in 2020, and more than $1.00 per share in 2021.
WellCare said it expected to fund the transaction through cash on hand, as well as from issuing new equity of up to $1.2 billion and debt of up to $1 billion.
The company also said it had secured $2.5 billion in committed bridge financing.
(Reporting by Ankit Ajmera in Bengaluru; Editing by Anil D’Silva)