Perhaps it is just a case of pre-holiday weekend lethargy or a muted reaction to the June jobs report, but healthcare providers exchange traded funds are trading lower despite another round of deal-making in the industry.
Earlier Thursday, Centene (NYSE: CNC) said it will acquire rival Health Net (NYSE: HNT) for $6.8 billion in cash and stock, a purchase price that also includes the assumption of $500 million in debt.
“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,” according to a statement.
Shares of Centene are down 4.7% on the news while Health Net is higher by just over 12%. The iShares U.S. Healthcare Providers ETF (NYSEArca: IHF), one this year’s top 10 sector ETFs, is off a quarter of a percent at this writing. The $1 billion IHF allocates about 4.1% of its combined weight to Centene and Health Net. [M&A Activity Lifts This Healthcare ETF]
It is just speculation, but perhaps a $6.8 billion deal, one announced right before Independence Day to boot, is not enough to thrill IHF investors. Not when the possibility of much larger deals for the ETF’s largest constituents looms.
For weeks, investors and the financial media have been expecting a wave of consolidation that could see marriages among some of IHF’s largest holdings. Earlier this week, Cigna (NYSE: CI) rejected a $47 billion takeover offer from Anthem (NYSE: ANTM). Anthem and Cigna are IHF’s fourth- and fifth-largest holdings, respectively, combining for over 13% of the ETF’s weight. [More M&A Coming for This Healthcare ETF]