Centene to Combine with Health Net in Transaction Valued at Approximately $6.8B, Estimating $150M In Annual Synergies

Centene Corporation

and Health Net, Inc.

announced that the Boards of Directors of both companies have unanimously approved a definitive agreement under which Centene will acquire all of the shares of Health Net in a cash and stock transaction valued at approximately $6.8 billion, including the assumption of approximately $500 million of debt. The combination of Centene and Health Net would create a leading diversified multi-national healthcare enterprise with more than ten million members across the country and estimated 2015 pro forma premium and service revenues of approximately $37 billion. Centene is expected to continue to deliver attractive growth by offering a more comprehensive and scalable portfolio of innovative solutions focusing on uninsured and under-insured individuals, including participation in Medicare Advantage, TRICARE, and Veterans Affairs programs. The companies believe that the addition of Health Net's high-quality Medicare platform to Centene's Medicaid programs provides an opportunity for additional growth across the combined company's markets. Health Net's demonstrated commitment to risk-based provider arrangements is reflective of the market shift from volume to value and is anticipated to enhance Centene's leading position in high quality, low cost access to government-sponsored programs. With increased scale and diversification, Centene expects to deploy its full portfolio of specialty services and provide an integrated offering that benefits its members, providers and other stakeholders. Under the terms of the agreement, Health Net shareholders would receive 0.622 shares of Centene common stock and $28.25 in cash for each share of Health Net common stock. Based on Centene's closing stock price on July 1, 2015, the implied consideration of $78.57 per share represents a premium of approximately 21% over Health Net's closing stock price on July 1, 2015, and of approximately 26% on June 1, 2015. Upon completion of the transaction, Centene shareholders would own approximately 71% of the combined entity, with Health Net shareholders owning approximately 29%. The transaction is expected to be significantly accretive to Centene's diluted earnings per share in the first year following closing. "We are pleased to have reached this agreement with Health Net, which we believe will create value for both Centene and Health Net shareholders and will enhance our ability to serve our members and work with our providers and government partners," said Michael F. Neidorff, Centene's Chairman, President and Chief Executive Officer. "Over the past five years, Centene has achieved record performance and today's announcement is a significant next step in our strategy to increase scale and drive geographic and product diversification. This transaction ensures that we extend our competitive position as one of the largest plans covering government-sponsored programs in the country. Health Net's presence in California and other key western states is complementary to our offerings, allowing us to bring additional innovative solutions to the healthcare market. With Health Net, we see opportunities to leverage our local approach more broadly to enhance our members' access to higher quality healthcare services on a cost-effective basis and ensure measurable quality outcomes." Mr. Neidorff continued, "We have tremendous respect for Health Net's management team and employees, and for all that they have accomplished. Given our scalable model and record of successfully integrating acquisitions, we expect to achieve a smooth transition. Together, we will build on both companies' shared commitment to working with providers and key community stakeholders to achieve better results for members and drive shareholder value." Jay Gellert, Health Net's President and Chief Executive Officer, said, "Centene has an impressive record of serving populations that have been traditionally underserved in a high-quality and consumer-centered manner. Our successes complement Centene very well and will lead to better offerings in line with new consumer and payer demands. After closing, we will be a leading provider of managed health care services very much aligned with the future. We expect that Health Net associates will play a critical role in the future of the combined company." Strategic and Financial Benefits of the Transaction Addition of Incremental Scale: The addition of Health Net's complementary network is expected to strengthen Centene's presence in the California Medicaid program, which is the country's largest with more than 12 million individuals. The transaction will provide Centene with access to California's dual demonstration program and expansion in other Medicaid and Medicare programs in the Western United States, including Arizona, Oregon and Washington. The combined company expects to have approximately six million Medicaid members, making it one of the largest Medicaid managed care organizations in the country. The combined company anticipates driving profitable growth by leveraging Centene's local approach that provides members access to high quality and culturally sensitive health care services. Increased Product Diversity Provides Ability to Create a More Comprehensive Portfolio: This transaction would extend Centene's offerings in government programs including Medicare, TRICARE, and U.S. Department of Veterans Affairs. The combined company would be positioned to provide its members access to more solutions, with opportunities for integrated specialty services across the entire enterprise. In particular, the combined company believes that Health Net's high quality Medicare platform, including its presence in Medicare Advantage, has the potential to be applied across the combined business thereby enhancing the growth strategy. Centene also believes there are opportunities to scale Health Net's programs that reach underserved communities and extend its business lines for this constituency. Both companies have demonstrated success focusing on the subsidized portion of the Health Insurance Marketplace. The companies believe that by focusing on these government programs, the combined company will enhance its innovative provider relationships that enable it to deliver affordable, accessible healthcare. Strong Financial Profile and Significant Earnings Accretion: Combined, Centene and Health Net are estimated to have 2015 pro forma annual premium and service revenues of approximately $37 billion. The transaction is expected to generate diluted earnings per share accretion of 10% and adjusted diluted earnings per share accretion of 20% in the first year following closing. Significant Synergy Opportunities: The combined company is estimated to achieve approximately $150 million of annual cost synergies by the second year following close with 50% achieved after year one following close. Synergies will come from areas including efficiencies in core G&A, integration of a range of specialty services and leveraging capabilities in IT systems and process management. Organization and Management Upon closing of the transaction, Mr. Neidorff will lead the combined company as Chairman, President and Chief Executive Officer. Mr. Gellert will assist to achieve a smooth transition. The combined company will be headquartered in St. Louis, Mo, the location of Centene's current headquarters, with operations throughout the country. Financing and Approvals Centene intends to fund the cash portion of the acquisition through a combination of existing cash on hand and debt financing. The transaction is not contingent upon financing, with Wells Fargo, N.A. providing $2.7 billion of financing commitment. The transaction is expected to close by early 2016. It is subject to approval by Centene and Health Net shareholders, the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, approvals by relevant state insurance and healthcare regulators and other customary closing conditions. Advisors Allen & Company LLC and Evercore are serving as financial advisors to Centene, with Skadden, Arps, Slate, Meagher & Flom LLP serving as legal counsel. J.P. Morgan Securities Inc. LLC is serving as financial advisor to Health Net with Morgan, Lewis & Bockius LLP serving as legal counsel. Conference Call