Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.22.1
Acquisitions
3 Months Ended
Mar. 31, 2022
Business Combinations [Abstract]  
Acquisitions Acquisitions
Magellan Acquisition

On January 4, 2022, the Company acquired all of the issued and outstanding shares of Magellan. The Magellan Acquisition enables Centene to provide whole-health, integrated healthcare solutions to deliver better health outcomes at lower costs for complex, high-cost populations. Total consideration for the acquisition was $2,561 million, consisting of $2,501 million in cash and $60 million related to the fair value of replacement equity awards associated with pre-combination service. The Company recognized $97 million of acquisition related expenses, primarily related to Magellan, that were in the Consolidated Statement of Operations for the three months ended March 31, 2022.

The Magellan Acquisition was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. Due to the timing of the acquisition, the valuation of assets acquired and liabilities assumed has not yet been finalized, and as a result, the preliminary estimates have been recorded and are subject to change. Any necessary adjustments from the preliminary estimates will be finalized within one year from the date of acquisition. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.
The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 4, 2022 is as follows ($ in millions):
Assets acquired and liabilities assumed  
Cash and cash equivalents
$ 997 
Premium and related receivables
855 
Short-term investments
144 
Other current assets
225 
Long-term investments
43 
Restricted deposits
Property, software and equipment
91 
Intangible assets (a)
600 
Other long-term assets 50 
Total assets acquired 3,012 
Medical claims liability 249 
Accounts payable and accrued expenses 476 
Return of premium payable 75 
Unearned revenue
Current portion of long-term debt
Long-term debt (b)
542 
Deferred tax liabilities (c)
81 
Other long-term liabilities 82 
Total liabilities assumed 1,518 
Mezzanine equity 32 
Total identifiable net assets 1,462 
Goodwill (d)
1,099 
Total assets acquired and liabilities assumed
$ 2,561 

The Company has made the following preliminary fair value adjustments based on information reviewed through March 31, 2022. Significant fair value adjustments are noted as follows:

(a)     The identifiable intangible assets acquired are to be measured at fair value as of the completion of the acquisition. The fair value of intangible assets will be determined primarily using variations of the income approach, which is based on the present value of the future after tax cash flows attributable to each identified intangible asset. Other valuation methods, including the market approach and cost approach, will be considered in estimating the fair value. The identifiable intangible assets include purchased contract rights, trade names, provider contracts and developed technologies.

(b)    Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of Magellan's Senior Notes and Credit Agreement assumed in the acquisition was $535 million. In January 2022, the Company paid off Magellan's debt acquired in the transaction using Magellan's cash on hand.

(c)    The preliminary deferred tax liabilities are presented net of $117 million of deferred tax assets.

(d)    Goodwill is estimated at $1,099 million and primarily relates to synergies expected from the acquisition and the assembled workforce of Magellan. The assignment of goodwill to the Company’s respective segments has not been completed at this time, but the majority of goodwill is expected to be allocated to the Specialty segment. The majority of the goodwill is not deductible for income tax purposes.