Centene Is Working Through an Asset Review Process. What Does This Mean for Magellan Health?

St. Louis-based Centene Corp. will review the assets of the recently acquired Magellan Health Inc. as part of a wider effort to unlock additional shareholder value.

Speaking on the company’s annual earnings call on Tuesday, Centene executives reviewed their so-called “value creation plan” — previously announced at the company’s investor day in December — which calls for $700 million in sales, general and administrative (SG&A) savings, widening gross margins and strategic capital deployment.

That value creation plan calls for a portfolio review process of its various assets. Sarah London, vice chairman of the Centene board, said on the call that there are no exceptions to the portfolio review process, adding that “the inbound Magellan assets are going through that portfolio review process and I think will be subject to the same criteria as all the other assets.”


She pointed to the company selling a majority stake in U.S. Medical Management (USMM) as an example of this process. In November, the company announced an agreement to sell a majority stake in USMM to Rubicon Founders; Valtruis, a WCAS company; Oak HC/FT; and HLM Venture Partners. The company then used the proceeds of the sale to return $200 million to investors via share buybacks.

“We are aggressively working our way through the noncore portfolio with a consistent, rigorous and strategic evaluation process,” London said, adding that the USMM sale solidified the company’s approach to the portfolio review process.

USMM is a group of companies that offer home health care and includes an accountable care organization.


London brought up the review of Magellan Health in response to an analyst question about the portfolio review process.

Centene closed its acquisition of Magellan Health on Jan. 4. The company’s earnings release said the total cost of the deal was $2.6 billion, rather than the announced $2.2 billion. Centene paid for Magellan Health with unregulated cash.

Centene CEO Michael Neidorff said the Magellan Health acquisition expands the company’s reach and ability in behavioral health.

“In addition, Magellan will give us the capability to innovate and reimagine behavioral health, significantly enhancing our ability to provide integrated physical and mental health care to all our members,” Neidorff said.

However, Centene Chief Operating Officer Brent Layton said on the call that Magellan Health adds 0.2%, or 20 basis points, to the company’s SG&A rate. The company’s international business adds 0.3% and the healthcare enterprise business increases it by 0.1%.

“Our value creation plan is focused on driving that lower over time,” Layton said.

Jim Murray, the former president and chief operating officer of Magellan Health, will have a hand in Centene’s value creation plan. In January, he was named as Centene’s chief transformation officer and will lead the company’s value creation office and the Centene advanced behavioral health division.

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