Filed by Centene Corporation
Pursuant to Rule 425 under the Securities Act of 1933, as amended, and
deemed filed pursuant to Rule 14a-12 under the
Securities Exchange Act of 1934, as amended
Subject Company: Health Net, Inc.
Commission File No.: 1-12718
Credit Suisse 34th Annual Healthcare Conference—Scottsdale
November 10, 2015
Safe Harbor Statement
Cautionary Statement
Regarding Forward-Looking Statements
This document contains certain forward-looking statements with respect to
the financial condition, results of operations and business of Centene, Health Net and the combined businesses of Centene and Health Net and certain plans and objectives of Centene and Health Net with respect thereto, including the expected benefits
of the proposed merger. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as “anticipate”, “target”,
“expect”, “estimate”, “intend”, “plan”, “goal”, “believe”, “hope”, “aim”, “continue”, “will”, “may”, “would”, “could”
or “should” or other words of similar meaning or the negative thereof. There are several factors which could cause actual plans and results to differ materially from those expressed or implied in forward-looking statements. Such factors
include, but are not limited to, the expected closing date of the transaction; the possibility that the expected synergies and value creation from the proposed merger will not be realized, or will not be realized within the expected time period; the
risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; changes in economic conditions,
political conditions, changes in federal or state laws or regulations, including the Patient Protection and Affordable Care Act and the Health Care Education Affordability Reconciliation Act and any regulations enacted thereunder, provider and state
contract changes, the outcome of pending legal or regulatory proceedings, reduction in provider payments by governmental payors, the expiration of Centene’s or Health Net’s Medicare or Medicaid managed care contracts by federal or state
governments and tax matters; the possibility that the merger does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of approval of both Centene’s stockholders and Health
Net’s stockholders; the risk that financing for the transaction may not be available on favorable terms; and risks and uncertainties discussed in the reports that Centene and Health Net have filed with the Securities and Exchange Commission
(the “SEC”). These forward-looking statements reflect Centene’s and Health Net’s current views with respect to future events and are based on numerous assumptions and assessments made by
Centene and Health Net in light of their experience and perception of historical trends, current conditions, business
strategies, operating environments, future developments and other factors they believe appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on
circumstances that will occur in the future. The factors described in the context of such forward-looking statements in this announcement could cause Centene’s and Health Net’s plans with respect to the proposed merger, actual results,
performance or achievements, industry results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is believed that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this announcement are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as of the
date of this announcement. Neither Centene nor Health Net assumes any obligation to update the information contained in this announcement (whether as a result of new information, future events or otherwise), except as required by applicable law.
These risks, as well as other risks associated with the merger, are more fully discussed in the preliminary joint proxy statement/prospectus, as it may be amended, that is included in the Registration Statement on Form S-4 that has been filed with
the SEC on September 21, 2015 in connection with the merger. A further list and description of risks and uncertainties can be found in Centene’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2014 and in its reports on Form 10-Q and Form 8-K as well as in Health Net’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2014 and in its reports on Form 10-Q and Form 8-K.
2
Additional Information and Where to Find It
The
proposed merger transaction involving Centene and Health Net will be submitted to the respective stockholders of Centene and Health Net for their consideration. In connection with the proposed merger, Centene prepared a registration statement on
Form S-4 that included a joint proxy statement/prospectus for the stockholders of Centene and Health Net filed with the SEC on September 21, 2015. The registration statement has been declared effective by the SEC. Each of Centene and Health Net have
mailed the definitive joint proxy statement/prospectus to their respective stockholders and, at the appropriate time, will file other documents regarding the merger with the SEC. Centene and Health Net urge investors and stockholders to read the
definitive joint proxy statement/prospectus, as well as other documents filed with the SEC, because they will contain important information. Investors and security holders may receive the registration statement containing the joint proxy
statement/prospectus and other documents free of charge at the SEC’s web site, http://www.sec.gov. These documents can also be obtained free of charge from Centene upon written request to the Investor Relations Department, Centene Plaza 7700
Forsyth Blvd. St. Louis, MO 63105, (314) 725-4477 or from Centene’s website, http://www.centene.com/investors/, or from Health Net upon written request to the Investor Relations Department, Health Net, Inc. 21650 Oxnard Street Woodland Hills,
CA 91367, (800) 291-6911, or from Health Net’s website, www.healthnet.com/InvestorRelations.
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Earnings Guidance Policy
Our Company’s
policy is, “that the Company undertakes no obligation to update its earnings guidance, other than as part of its quarterly or yearly earnings disclosure, and that silence on guidance by the Company or Company officials should not be interpreted
that guidance has or has not changed. In any event, no updated guidance would ever be given that is not previously or simultaneously disclosed in an SEC filing or other broad non-exclusionary means.”
“Further, it is Company policy to generally not hold discussions with investors commencing two weeks prior to
earnings release.”
Centene Overview
WHO WE ARE
St. Louis
based company founded in Milwaukee in 1984
17,100
employees #186 $3.9 billion
on the
500 in cash and investments
Fortune list
$21.0-21.3 billion
expected revenue for 2015
WHAT WE DO
23 states
with government sponsored healthcare programs
Medicaid Exchanges MA D-SNP Correctional
(20 states) (12 States) (8 States) (5 States)
4.8 million members 237,000 & 2,000
Physicians Hospitals
in our provider networks
Delivering Results
Initial 2014 Actual
Guidance 2014
Premium & Service $13.5B—$14.0 B $15.7B
Revenue
$ 2.50 Diluted EPS
$ $(0. 0.06) 06
$ 2.25
$0.20
$ 2.00 $0.26
$2.23
$ 1.75
$1.83
$ 1.50
Guidance Tax Benefit Performance Transaction Costs Actual 2014
Midpoint
YTD Q3 Recap
2014 2015% Growth
Membership 3.9M 4.8M ? 24%
Premium & $11.3B $15.4B- ? 37%
Service
Revenue
EPS $1.35 $1.99- ? 47%
Stock Performance $41.36 $54.23 ? 31%
(As of Sept
30)
2015 Guidance
($ IN MILLIONS, EXCEPT SHARE DATA)
Low High
Premium and Service Revenues $21,000 $21,300
Diluted EPS (excluding merger related $2.84 $2.90
costs)
HBR% 89.2% 89.4%
G&A% (excluding merger related costs) 8.2% 8.4%
Effective Tax Rate 48.0% 50.0%
Diluted Shares (in millions) 123.0 123.5
Disciplined Growth
| 5 |
|
YEAR CAGR: 2010 – 2015* |
38% 26% 37%
Premium & Stock Price
EPS
Service Revenue 5 Year CAGR: 2009 – 2014
Industry Leading Growth Rates
| * |
|
Based on midpoint of 2015 guidance. |
9
Centene Has Delivered Growth Since 2008
HEALTHCARE COVERAGE SOLUTIONS
Government Solutions AZ FL GA IN OH SC TX WI
Low-Income Medicaid
CHIP
ABD (non duals)
ABD (dual-eligible) or Dual Demonstrations
Long-Term Services and Supports
Foster Care
Medicare Special Needs Plan
Specialty Health Solutions
Pharmacy Benefits
Behavioral & Specialty Therapies
Life & Health Management
Managed Vision
Telehealth
States
70
Solutions
10
Combination Creates Increased Product Diversity
Across a Broader Footprint (Pro Forma 2015)
Government Solutions AZ AR CA FL GA IL IN KS LA MA MI MN MS MO NH OH OR SC TN TX VT WA WI
TANF
Medicaid Expansion
CHIP
ABD (non-duals)
ABD (Medicaid only
dual-eligibles)
Dual Demonstrations
Intellectually/Developmentally Disabled
Long-Term
Services and Supports
Foster Care
Medicare Advantage
Medicare Special Needs Plan
Health Insurance Marketplace
Correctional Healthcare
Specialty Health
Solutions
Pharmacy Benefits
Behavioral & Specialty Therapies
Life & Health Management
Primary Care Solutions for Complex
Populations
Managed Vision
Dental Benefits1
Telehealth (Nurse Triage and
Education
Line)
1 Centene is in process of transitioning dental services from external vendors to our new dental benefit management subsidiary.
Note: Does not include HNT’s Group Commercial and TRICARE lines of business.
23 States 237 Solutions
11
Funds Flow
Structured to Facilitat
Free Cash
Flow
STATES
Actuarially Sound Premiums
CENTENE’S REGULATED HEALTH PLANS
Market-based and state-approved contractual relationship
CENTENE’S UNREGULATED ENTITIES
CENTENE CENPATICO DENTAL US SCRIPT & MANAGEMENT NURTUR OPTICARE BEHAVIORAL NURSEWISE HEALTH & ACARIAHEALTH
COMPANY HEALTH WELLNESS
Unregulated net cash flow
CENTENE CORPORATION
Unregulated Cash Flow Available to Service Debt
And Cover Fixed Charges
12
Enhanced Capabilities for Delivering High Quality, Affordable Healthcare
1. Growth in 2017 and beyond
2. Critical mass
3. Increased capabilities
4. Pro Forma 2015E Premium & Service Revenue of $37B
5. Pro Forma 2015E Adj. EBITDA in excess of $1.5B
13
Enhanced Capabilities for Delivering High Quality, Affordable Healthcare
Health Net adds over 6M members* & Key Capabilities in Growth Products
1.8M Medicaid members*
Provides deeper
penetration in California—the largest Medicaid state with 12 million beneficiaries
Approximately
270K Medicare Advantage members * in CA, AZ, OR & WA
Provides a 4 Star Medicare Advantage capability
Over 65% of Medicare beneficiaries are at or below 400% of the FPL
Opportunity to leverage HNT’s MA platform across CNC states
Nearly 275K Exchange members *
Complimentary Exchange approach—focused on targeted “low-income” populations
24K Dual Demonstration members *
124K Prison
Health Eligibles *
Other Government Contracts Business: ? 2.8M TRICARE members * ? Approximately 5M VA
eligibles*
Government Contracts revenues of at least $600M expected for FY2015
Opportunity for increased specialty company growth
| * |
|
Membership as of 9/30/15 |
14
Key Transaction Terms
| $28.25 |
|
in cash plus 0.622 shares of Centene |
Purchase
Price Implies $78.57 per Health Net share based on July 1st close
Total transaction value of $6.8B, including assumption of Health Net debt
Ownership Centene shareholders to own ~71% of Company and Health Net shareholders to
own ~29% of Company
Financing commitment of $2.7B
Financing Pro forma debt to capital ratio of ~40%
Permanent financing to consist primarily of senior notes
Greater than 10% accretive to GAAP EPS in first full year
Projected
Financial Greater than 20% accretive to Adjusted EPS in first full year
Impact Pre tax synergies of $150M by the end of year 2; half in year 1 (On top of Cognizant Savings)
Expect to close in early 2016
Path to Health Net
and Centene shareholder approval
Closing
Granted early termination of the waiting period required under Hart -Scott-Rodino
? Customary State approvals—including “change of control” approvals from State insurance
and health regulators in Arizona, California, and Oregon
15
Cost Synergy Opportunities
Core G&A
Efficiencies
Specialty Company
Integration
Medical Costs
Technology Platform
$150M in Year 2
On Top of Cognizant Savings
Savings Are Incremental to Growth Opportunity
16
Critical Mass: Leader in High Quality Affordable Plans
Pro Forma Membership as of 9/30/15
Medicaid:
6.2 million
Specialty / Government: 3.1 million
Commercial / Exchanges: 1.3 million
Medicare: 280,000
Duals: 50,000
Total 10.9 million
Centene Common States
Note: Map excludes Health
Net’s TRICARE North Region membership
17
Diversifying and Setting the Stage for 2016 and Beyond
4% 4% 4% 8% 4%
11%
2% 19%
39%
83% 16%
34% 64%
2015E Revenue: 2015E Revenue: 2015E Pro
Forma Revenue:
$21 billion $16 billion $37 billion
Medicaid Commercial / Exchanges Medicare
Specialty / Government Duals
Note: Estimate of
revenue represents Premium and Service revenue and excludes health insurer fee revenue, premium taxes and investment income
18
Significant and Real Growth Opportunities
Enhanced Introduces
Increased Additional
Opportunity for Leverage
Commercial
Leader in Medicare Government
Targeted Specialty Group
Medicaid Advantage Health
Exchange Platform
Business
Presence Programs
Populations
National 4 Star Plans Leader in VA
Depth and Harnesses
Presence Centene States Quality TRICARE Breadth of strong
Leadership Affordable Integrated distribution
Position Plans Specialty channels
Value Based
Products Provides
Networks opportunities
on private
exchanges
19
US Health Care – Public Financing
191 million
Millions of Beneficiaries(56% of Americans)
172 million
(52% of Americans)
134 million 5 21
(42% of Americans)
2014 2019 2024
CHIP Exchange
Medicare Medicaid
Source: HMA, 2014
20
Enhanced Capabilities for Delivering High Quality, Affordable Healthcare
Leading position in Government programs: Medicaid, Medicare, VA and TRICARE
Scale in
Government PF 2015E Premium &
Service Revenue of $37B and Adj. EBITDA in excess of $1.5B
Programs Opportunity to leverage specialty programs
Provides scale and expertise in Medicare
Increased Strong quality position with 4 Star plan
Capabilities
Innovative capabilities for value based Exchange & consumer products
Significant growth opportunity in Medicare, Exchanges & other Gov’t programs
Platform for
Expanded Leadership in CA, FL and TX
Growth Expanded growth pipeline
Compelling In first year, GAAP EPS accretion of >10% and Adjusted EPS accretion > 20%
Financial
Profile Prudent capital structure with
debt to capital of ~40%
21
Credit Suisse 34th Annual Healthcare Conference—Scottsdale
November 10, 2015
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