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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-206463

 

 

		&

TRANSACTION PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Stockholders:

Each of the boards of directors of Centene Corporation and Health Net, Inc. has unanimously approved a merger, combining Centene and Health Net and bringing together two complementary managed care organizations with a history of operating excellence to create a stronger, larger and more geographically diverse organization that will be well positioned to create greater value for all of our stockholders.

Centene and Health Net entered into an agreement and plan of merger on July 2, 2015. Subject to stockholder approvals and the satisfaction (or waiver to the extent legally permissible) of certain other closing conditions, Centene and Health Net will combine their businesses through the merger of Health Net with a newly formed, direct wholly owned subsidiary of Centene, with Health Net thereupon becoming a direct wholly owned subsidiary of Centene as the surviving corporation, in a transaction which is referred to as the merger. In addition, as more fully described herein, immediately following the completion of the merger and contingent upon Health Net’s receipt before the effective time of the merger of an opinion from Morgan, Lewis & Bockius LLP, its outside legal counsel, that the mergers will constitute a reorganization under Section 368(a) of Internal Revenue Code of 1986, as amended, which is referred to as the Code, Health Net, as the surviving corporation in the merger, will merge with and into another direct wholly owned Centene subsidiary, with the latter subsidiary surviving, in a transaction which is referred to as the subsequent merger. The merger and the subsequent merger are referred to collectively as the mergers or the transaction in this joint proxy statement/prospectus.

If the merger is completed, Health Net stockholders (other than (i) Centene, Health Net, Chopin Merger Sub I, Inc., a direct wholly owned subsidiary of Centene, which is referred to as Merger Sub I, and Chopin Merger Sub II, Inc., a direct wholly owned subsidiary of Centene, which is referred to as Merger Sub II, (ii) holders of Health Net stock options, restricted stock units or performance share awards (with respect to such underlying shares only) and (iii) any stockholders holding shares of Health Net common stock with respect to which appraisal rights are properly demanded and not withdrawn under the General Corporation Law of the State of Delaware) will receive $28.25 in cash and 0.622 of a validly issued, fully paid and non-assessable share of Centene common stock for each share of Health Net common stock, which ratio is referred to as the exchange ratio, and which cash and stock consideration combined are referred to as the merger consideration. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. No fractional shares of Centene common stock will be issued in the merger. Instead of receiving any fractional shares, each holder of Health Net common stock will be paid an amount in cash, without interest, rounded down to the nearest cent, equal to the product of (x) the amount of the fractional share interest in a share of Centene common stock to which such holder would otherwise be entitled (rounded to three decimal places) and (y) an amount equal to the volume weighted average price per share of Centene common stock on the New York Stock Exchange, which is referred to as the NYSE, on each of the ten consecutive trading days ending with the third complete trading day immediately prior to the closing date, weighted by the total volume of trading in Centene common stock on each such trading day. Centene stockholders will continue to own their existing shares of common stock of Centene, the form of which will not be changed by the transaction.

Upon completion of the merger, former Health Net stockholders will own approximately 29% of the then outstanding Centene common stock, based on the number of shares and stock-based awards of Centene and Health Net outstanding as of September 17, 2015. The value of the merger consideration to be received in exchange for each share of Health Net common stock will fluctuate with the market value of Centene common stock until the merger is completed.

The merger and the subsequent merger, if both are consummated, are intended to constitute a single integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Code. If the subsequent merger is consummated, in general no gain or loss will be recognized by U.S. holders of Health Net common stock upon the exchange of Health Net common stock for Centene common stock except that U.S. holders will recognize gain (but not loss) to the extent such U.S. holders receive cash (including the cash portion

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of the merger consideration and any cash received in lieu of a fractional share). If the subsequent merger is not consummated, U.S. holders of Health Net common stock would recognize gain or loss equal to the difference, if any, between (i) the sum of the fair market value of the Centene common stock received in the merger and any cash received and (ii) such U.S. holder’s adjusted tax basis in the Health Net common stock surrendered in exchange therefor. You are strongly urged to consult with a tax advisor to determine the particular U.S. federal, state or local or foreign income or other tax consequences of the mergers to you. You will not know at the time of your respective vote whether the subsequent merger will take place, and therefore you will not know the precise tax treatment of the merger or mergers when you vote.

Based on Centene’s closing stock price on September 18, 2015, the most recent practicable date for which such information was available, the merger consideration represented approximately $67.03 in value per share of Health Net common stock, which represents a premium of approximately 3.0% over Health Net’s closing stock price on July 1, 2015, the last trading day before the public announcement of the transaction described herein. The value of the merger consideration to be received in exchange for each share of Health Net common stock will fluctuate with the market value of Centene common stock until the merger is complete. The common stock of each of Centene and Health Net is listed on the New York Stock Exchange under the symbol “CNC” and “HNT,” respectively. We urge you to obtain current market quotations for the shares of common stock of Centene and Health Net.

Each of Health Net and Centene is holding a special meeting of its stockholders to vote on the proposals necessary to complete the merger. Information about these meetings, the mergers, the share issuance, and the other business to be considered by stockholders at each of the special meetings is contained in this joint proxy statement/prospectus. Any stockholder entitled to attend and vote at the Health Net or Centene special meeting is entitled to appoint a proxy to attend and vote on such stockholder’s behalf. Such proxy need not be a holder of Health Net or Centene common stock. We urge you to read this joint proxy statement/prospectus and the annexes and documents incorporated by reference carefully. You should also carefully consider the risks that are described in the “Risk Factors” section beginning on page 44.

Your vote is very important regardless of the number of shares of Centene common stock or Health Net common stock that you own. The merger cannot be completed without approval of (i) the Share Issuance proposal (as defined below) by the affirmative vote of holders of a majority of the votes cast by the shares of Centene common stock represented (in person or by proxy) at the Centene special meeting that are entitled to vote on the proposal and (ii) the Merger proposal (as defined below) by the affirmative vote of holders of a majority of the shares of Health Net common stock outstanding and entitled to vote on the record date.

Whether or not you plan to attend your company’s special meeting of stockholders, please submit your proxy as soon as possible to make sure that your shares are represented at that meeting.

The Centene board of directors unanimously recommends that Centene stockholders vote “FOR” the proposal to approve the issuance of Centene common stock in the merger, which is necessary to complete the merger.

The Health Net board of directors unanimously recommends that Health Net stockholders vote “FOR” the proposal to adopt the merger agreement, which is necessary to complete the merger.

 

Michael F. Neidorff		Jay M. Gellert
Chairman, President and Chief Executive Officer		President and Chief Executive Officer
Centene		Health Net

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger, the subsequent merger or the other transactions described in this joint proxy statement/prospectus or the securities to be issued in connection with the merger or determined if this joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated September 21, 2015, and is first being mailed to stockholders of Centene and Health Net on or about September 22, 2015.

 

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON, OCTOBER 23, 2015

To the Stockholders of Centene:

A special meeting of stockholders of Centene Corporation will be held at Centene Plaza, 7700 Forsyth Boulevard, St. Louis, Missouri 63105, on October 23, 2015 at 12:00 p.m., Central Time, for the following purposes:

1. To approve the issuance of Centene common stock, par value $0.001 per share, pursuant to the Agreement and Plan of Merger, dated as of July 2, 2015, by and among Centene, Chopin Merger Sub I, Inc., Chopin Merger Sub II, Inc. and Health Net, Inc., as the same may be amended from time to time, a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice (the “Share Issuance” proposal).

2. To approve any proposal to adjourn the Centene special meeting from time to time, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the Share Issuance proposal (the “Centene Adjournment” proposal).

3. To approve an amendment to Centene’s certificate of incorporation, as amended, to increase the number of authorized shares of Centene common stock from 200 million to 400 million, the full text of which is attached as Annex H to the joint proxy statement/prospectus accompanying this notice (the “Charter Amendment” proposal).

Approval of the Share Issuance proposal is required to complete the merger. Approval of the Charter Amendment proposal is not required to complete the merger.

Centene will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof by or at the direction of the board of directors.

The accompanying joint proxy statement/prospectus further describes the matters to be considered at the Centene special meeting.

The Centene board of directors has set September 22, 2015 as the record date for the Centene special meeting. Only holders of record of Centene common stock at the close of business on September 22, 2015 will be entitled to notice of and to vote at the Centene special meeting and any adjournments or postponements thereof. Any stockholder entitled to attend and vote at the Centene special meeting is entitled to appoint a proxy to attend and vote on such stockholder’s behalf. Such proxy need not be a holder of Centene common stock.

Your vote is very important regardless of the number of shares of Centene common stock that you own. The merger cannot be completed without approval of the Share Issuance proposal by the affirmative vote of holders of a majority of the votes cast by the shares of Centene common stock represented (in person or by proxy) at the Centene special meeting that are entitled to vote on the proposal. To ensure your representation at the Centene special meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or through the Internet. Please vote promptly whether or not you expect to attend the Centene special meeting. Submitting a proxy now will not prevent you from being able to vote in person at the Centene special meeting.

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The Centene board of directors has unanimously approved the merger agreement and the transactions contemplated thereby and unanimously recommends that you vote “FOR” the Share Issuance proposal, “FOR” the Centene Adjournment proposal and “FOR” the Charter Amendment proposal.

By Order of the Centene Board of Directors,

 

Keith H. Williamson

Executive Vice President, General Counsel and Secretary

September 21, 2015

PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS CONCERNING THE MERGER, ABOUT THE PROPOSALS IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR ABOUT VOTING YOUR SHARES, PLEASE CALL EITHER:

Innisfree M&A Incorporated

501 Madison Avenue, 20^th Floor

New York, New York 10024

Phone: (877) 825-8772

Banks & Brokers: (212) 750-5833

or

Morrow & Co., LLC

470 West Avenue

Stamford, CT 06902

Phone: (800) 662-5200

Banks & Brokers: (203) 658-9400

Email: Centene@morrowco.com

 

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Health Net, Inc.

21650 Oxnard Street

Woodland Hills, CA 91367

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

to be held on October 23, 2015

To the Stockholders of Health Net, Inc.:

We are pleased to invite you to attend the special meeting of stockholders of Health Net, Inc., a Delaware corporation (referred to as “Health Net”), which will be held at 21281 Burbank Boulevard, Woodland Hills, California 91367, on October 23, 2015, at 10:00 a.m., Pacific time, for the following purposes:

 

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to vote on a proposal to adopt the Agreement and Plan of Merger, dated as of July 2, 2015, by and among Centene Corporation, Chopin Merger Sub I, Inc., Chopin Merger Sub II, Inc. and Health Net, as amended from time to time (the “merger agreement”), which is further described in the sections titled “The Merger” and “The Merger Agreement,” beginning on pages 54 and 134, respectively, and a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice, which is referred to as the Merger proposal;

 

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to vote on an advisory (non-binding) proposal to approve the compensation that may be paid or become payable to Health Net’s named executive officers that is based on or otherwise related to the proposed transactions, which is referred to as the Merger-Related Compensation proposal; and

 

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to vote on a proposal to approve the adjournment of the Health Net special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the Merger proposal, which is referred to as the Health Net Adjournment proposal.

Health Net will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof by or at the direction of the Health Net board of directors. Please refer to the joint proxy statement/prospectus of which this notice is a part for further information with respect to the business to be transacted at the Health Net special meeting.

The Health Net board of directors has fixed the close of business on September 22, 2015 as the record date for the Health Net special meeting. Only Health Net stockholders of record at that time are entitled to receive notice of, and to vote at, the Health Net special meeting or any adjournment or postponement thereof. A complete list of such stockholders will be available for inspection by any Health Net stockholder for any purpose germane to the special meeting during ordinary business hours for the 10 days preceding the Health Net special meeting at Health Net’s offices at 21650 Oxnard Street, Woodland Hills, CA 91367. The eligible Health Net stockholder list will also be available at the Health Net special meeting for examination by any stockholder of record present at such meeting.

Completion of the merger is conditioned on adoption of the merger agreement by the Health Net stockholders, which requires the approval of a majority of the issued and outstanding shares of Health Net common stock entitled to vote at the Health Net special meeting.

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The Health Net board of directors has unanimously approved the merger and the merger agreement, declared the merger agreement advisable and in the best interest of Health Net and its stockholders, and unanimously recommends that Health Net stockholders vote “FOR” the proposal to adopt the merger agreement, “FOR” the approval, on an advisory (non-binding) basis, of the compensation that may be paid or become payable to Health Net’s named executive officers that is based on or otherwise relates to the proposed transactions and “FOR” the proposal to approve the adjournment of the Health Net special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation of proxies.

Your vote is very important regardless of the number of shares of Health Net common stock that you own. Whether or not you expect to attend the Health Net special meeting in person, to ensure your representation at the Health Net special meeting, we urge you to submit a proxy to vote your shares as promptly as possible by (i) visiting the Internet site listed on the Health Net proxy card, (ii) calling the toll-free number listed on the Health Net proxy card or (iii) submitting your Health Net proxy card by mail by using the provided self-addressed, stamped envelope. Submitting a proxy will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Health Net stock who is present at the Health Net special meeting may vote in person, thereby revoking any previous proxy. In addition, a proxy may also be revoked in writing before the Health Net special meeting in the manner described in the accompanying document. If your shares are held in the name of a broker, bank or other nominee, or through the Health Net 401(k) Plan please follow the instructions on the voting instruction card furnished by the broker, bank or other nominee, or your plan administrator.

The enclosed joint proxy statement/prospectus provides a detailed description of the merger and the merger agreement and the other matters to be considered at the Health Net special meeting. We urge you to carefully read this joint proxy statement/prospectus, including any documents incorporated by reference herein, and the annexes in their entirety. If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies or need help voting your shares of Health Net common stock, please contact Health Net’s proxy solicitor:

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

Phone: (212) 929-5500

Email: proxy@mackenziepartners.com

Website: www.mackenziepartners.com

By Order of the Health Net Board of Directors,

Kathleen A. Waters

Senior Vice President, General Counsel and Secretary

Woodland Hills, California

September 21, 2015

 

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REFERENCES TO ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates by reference important business and financial information about Centene and Health Net from other documents that are not included in or delivered with this joint proxy statement/prospectus. For a listing of the documents incorporated by reference into this joint proxy statement/prospectus, see “Where You Can Find More Information” beginning on page 220.

You can obtain any of the documents incorporated by reference into this joint proxy statement/prospectus by requesting them in writing or by telephone from Innisfree M&A Incorporated or Morrow & Co., LLC, Centene’s proxy solicitors, or MacKenzie Partners, Inc., Health Net’s proxy solicitor, at the following addresses and telephone numbers:

 

For Centene Stockholders:		For Health Net Stockholders:
Innisfree M&A Incorporated		MacKenzie Partners, Inc.
501 Madison Avenue, 20th Floor		105 Madison Avenue
New York, New York 10022		New York, New York 10016
(877) 825-8772 (toll-free)		Phone: (212) 929-5500
(212) 750-5833 (collect)		Email: proxy@mackenziepartners.com
or		Website: www.mackenziepartners.com
Morrow & Co., LLC
470 West Ave,
Stamford, CT 06902
(800) 662-5200 (toll-free)
(203) 658-9400 (collect)

To receive timely delivery of the documents in advance of the special meetings, you should make your request no later than October 8, 2015, which is 10 business days before the special meetings.

You may also obtain any of the documents incorporated by reference into this joint proxy statement/prospectus without charge through the Securities and Exchange Commission, which is referred to as the SEC, website at www.sec.gov. In addition, you may obtain copies of documents filed by Centene with the SEC by accessing Centene’s website at www.centene.com under the tab “Investors” and then under the heading “SEC Filings.” You may also obtain copies of documents filed by Health Net with the SEC by accessing Health Net’s website at www.healthnet.com under the tab “Investor Relations” and then under the heading “Financial Information.”

We are not incorporating the contents of the websites of the SEC, Centene, Health Net or any other entity into this joint proxy statement/prospectus. We are providing the information about how you can obtain certain documents that are incorporated by reference into this joint proxy statement/prospectus at these websites only for your convenience.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGERS AND THE SPECIAL MEETINGS			1
SUMMARY			12
The Parties			12
The Transaction			14
Consideration to be Received in the Merger by Health Net Stockholders			14
Treatment of Stock Options and Other Stock-Based Awards			15
Centene Board of Directors Following Completion of the Merger			16
Headquarters			16
Recommendations of the Centene Board of Directors			16
Recommendations of the Health Net Board of Directors			16
Opinions of Financial Advisors			17
Interests of Directors and Executive Officers in the Mergers			18
U.S. Federal Income Tax Consequences of the Merger			20
Accounting Treatment of the Merger			20
Appraisal Rights			20
Regulatory Approvals			21
Litigation Related to the Merger			21
Conditions to Completion of the Mergers			22
Treatment of Health Net’s Existing Debt; Financing			24
Timing of the Transaction			25
No Solicitation			25
Termination of the Merger Agreement; Termination Fees			25
Matters to be Considered at the Special Meetings			30
Voting by Centene and Health Net Directors and Executive Officers			31
Risk Factors			32
SELECTED HISTORICAL FINANCIAL DATA			33
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION			37
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA COMBINED PER SHARE INFORMATION			39
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION			40
Market Prices			40
Dividends			41
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			42

 

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RISK FACTORS			44
Risks Related to the Merger			44
Risks Relating to the Combined Company after Completion of the Merger			49
Other Risk Factors of Centene and Health Net			53
THE MERGER			54
Background of the Merger			54
Rationale for the Transaction			64
Centene Board of Directors’ Recommendations and Its Reasons for the Transaction			65
Health Net Board of Directors’ Recommendations and Its Reasons for the Transaction			68
Opinions of Centene’s Financial Advisors			72
Opinion of Health Net’s Financial Advisor			89
Certain Financial Projections			98
Governance of Centene Following Completion of the Merger			106
Headquarters			106
Interests of Directors and Executive Officers in the Merger			107
Director and Officer Indemnification			122
Accounting Treatment			122
Regulatory Approvals Required for the Merger			122
Treatment of Health Net’s Existing Debt; Financing			124
Treatment of Health Net Stock Options and Other Stock-Based Awards			124
Appraisal Rights			125
NYSE Listing of Centene Common Stock; Delisting and Deregistration of Health Net Common Stock			129
Litigation Relating to the Merger			129
U.S. Federal Income Tax Consequences			130
Restrictions on Sales of Shares of Centene Common Stock Received in the Merger			133
THE MERGER AGREEMENT			134
Structure of the Merger			134
Merger Consideration Received by Health Net Stockholders			134
Treatment of Health Net Stock Options and Other Stock-Based Awards			135
Closing			136
Marketing Period			136
Effective Time			137
Conversion of Shares; Exchange of Certificates; No Fractional Shares			137
Designation of Director			138
Representations and Warranties			138

 

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Covenants and Agreements			141
Conditions to the Merger			156
Termination			158
Effect of Termination			160
Termination Fees and Other Fees			160
Amendment and Waiver			163
Third Party Beneficiaries			163
Governing Law; Jurisdiction			163
Enforcement			164
THE CENTENE VOTING AGREEMENT			165
THE HEALTH NET VOTING AGREEMENT			168
INFORMATION ABOUT THE COMPANIES			171
Centene			171
Health Net			171
Merger Sub I			172
Merger Sub II			172
CENTENE SPECIAL MEETING			173
CENTENE PROPOSALS			178
Item 1. The Share Issuance Proposal			178
Item 2. The Centene Adjournment Proposal			178
Item 3. The Charter Amendment Proposal			179
Other Matters to Come Before the Meeting			180
HEALTH NET SPECIAL MEETING			181
Item 1. The Merger Proposal			187
Item 2. The Merger-Related Compensation Proposal			187
Item 3. The Health Net Adjournment Proposal			187
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			188
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			193
1. Description of Transaction			193
2. Basis of Presentation			194
3. Accounting Policies			195
4. Estimate of Consideration Expected to be Transferred			195
5. Estimate of Assets to be Acquired and Liabilities to be Assumed			196
6. Income Statement Pro Forma Adjustments			198
7. Balance Sheet Pro Forma Adjustments			200
DESCRIPTION OF CENTENE COMMON STOCK			202

 

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LEGAL MATTERS			217
EXPERTS			217
DATES FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2016 ANNUAL MEETING			217
Centene			217
Health Net			218
HOUSEHOLDING OF JOINT PROXY STATEMENT/PROSPECTUS			220
WHERE YOU CAN FIND MORE INFORMATION			220
Centene SEC Filings			220
Health Net SEC Filings			221

Annex A: Agreement and Plan of Merger

Annex B: Voting Agreement between Health Net and Michael F. Neidorff

Annex C: Voting Agreement between Centene and Jay M. Gellert

Annex D: Opinion of Allen & Company LLC

Annex E: Opinion of Evercore Group L.L.C.

Annex F: Opinion of J.P. Morgan Securities LLC

Annex G: Section 262 of the Delaware General Corporation Law

Annex H: Form of Certificate of Amendment of the Centene Certificate of Incorporation

 

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QUESTIONS AND ANSWERS ABOUT THE MERGERS AND THE SPECIAL MEETINGS

The following questions and answers briefly address some commonly asked questions about the mergers and each of the Centene and Health Net special meetings. They may not include all the information that is important to stockholders of Centene and Health Net. Stockholders should carefully read this entire joint proxy statement/prospectus, including the annexes and the other documents referred to or incorporated by reference herein.

Q: What are the mergers?

A: Centene Corporation, which is referred to as Centene, and Health Net, Inc., which is referred to as Health Net, have entered into an Agreement and Plan of Merger, dated as of July 2, 2015, which (as amended from time to time) is referred to as the merger agreement. A copy of the merger agreement is attached as Annex A to this joint proxy statement/prospectus. The merger agreement contains the terms and conditions of the proposed business combination of Centene and Health Net. Under the merger agreement, subject to satisfaction (or waiver to the extent legally permissible) of the conditions to the merger set forth in the merger agreement and described hereinafter, Chopin Merger Sub I, Inc., a direct wholly owned subsidiary of Centene, which is referred to as Merger Sub I, will merge with and into Health Net, with Health Net continuing as the surviving corporation and a direct wholly owned subsidiary of Centene, in a transaction which is referred to as the merger. Pursuant to the merger agreement, immediately following the completion of the merger and contingent upon Health Net’s receipt before the effective time of the merger of an opinion from Morgan, Lewis & Bockius LLP, which is referred to as Morgan Lewis, its outside legal counsel, that the mergers will constitute a reorganization under Section 368(a) of the Code, Health Net, as the surviving corporation in the merger, will merge with and into Chopin Merger Sub II, Inc., another direct wholly owned subsidiary of Centene, which is referred to as Merger Sub II, with Merger Sub II continuing as the surviving corporation and a direct wholly owned subsidiary of Centene, in a transaction which is referred to as the subsequent merger, and together with the merger is referred to as the mergers or the transaction.

Q: Why am I receiving these materials?

A: Centene and Health Net are sending these materials to their respective stockholders to help them decide how to vote their shares of Centene or Health Net common stock, as the case may be, with respect to the merger and other matters to be considered at their respective special meetings.

The merger cannot be completed unless Centene stockholders approve the issuance of Centene common stock in the merger and Health Net stockholders adopt the merger agreement. Each of Centene and Health Net is holding a special meeting of its stockholders to vote on the proposals necessary to complete the merger. Information about these special meetings, the mergers and the other business to be considered by stockholders at each of the special meetings is contained in this joint proxy statement/prospectus.

This joint proxy statement/prospectus constitutes both a joint proxy statement of Centene and Health Net and a prospectus of Centene. It is a joint proxy statement because each of the boards of directors of Centene and Health Net are soliciting proxies from their respective stockholders. It is a prospectus because Centene will issue shares of its common stock in exchange for outstanding shares of Health Net common stock in the merger.

Q: What will Health Net stockholders receive in the merger?

A: In the merger, Health Net stockholders (other than (i) Centene, Health Net, Merger Sub I, Merger Sub II or any of their respective subsidiaries, (ii) holders of Health Net stock options, restricted stock units or performance share awards (with respect to such underlying shares only) and (iii) any stockholders holding shares of Health Net common stock with respect to which appraisal rights are properly demanded and not withdrawn under the General Corporation Law of the State of Delaware, which is referred to as the DGCL) will receive $28.25 in cash and 0.622 of a validly issued, fully paid and non-assessable share of Centene common stock for each share of

 

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Health Net common stock, which is referred to as the exchange ratio, and which cash and stock consideration combined are referred to as the merger consideration. This exchange ratio is fixed and will not be adjusted to reflect changes in the stock price of either company before the merger is complete. No fractional shares of Centene common stock will be issued in the merger. Instead of receiving any fractional shares, each holder of Health Net common stock will be paid an amount in cash, without interest, rounded down to the nearest cent, equal to the product of (x) the amount of the fractional share interest in a share of Centene common stock to which such holder would otherwise be entitled (rounded to three decimal places) and (y) an amount equal to the volume weighted average price per share of Centene common stock on the New York Stock Exchange, which is referred to as the NYSE, on each of the ten consecutive trading days ending with the third complete trading day immediately prior to the closing date, weighted by the total volume of trading in Centene common stock on each such trading day, which amount in this clause (y) we refer to as the Centene stock value. Centene stockholders will continue to own their existing shares of common stock of Centene, the form of which will not be changed by the transaction.

The merger and the subsequent merger, if both are consummated, are intended to constitute a single integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Code. If the subsequent merger is consummated, in general no gain or loss will be recognized by U.S. holders of Health Net common stock upon the exchange of Health Net common stock for Centene common stock except that U.S. holders will recognize gain (but not loss) to the extent such U.S. holders receive cash (including the cash portion of the merger consideration and any cash received in lieu of a fractional share). If the subsequent merger is not consummated, U.S. holders of Health Net common stock would recognize gain or loss equal to the difference, if any, between (i) the sum of the fair market value of the Centene common stock received in the merger and any cash received and (ii) such U.S. holder’s adjusted tax basis in the Health Net common stock surrendered in exchange therefor. You are strongly urged to consult with a tax advisor to determine the particular U.S. federal, state or local or foreign income or other tax consequences of the mergers to you. You will not know at the time of your respective vote whether the subsequent merger will take place, and therefore you will not know the precise tax treatment of the merger or mergers when you vote. See “The Merger—U.S. Federal Income Tax Consequences” beginning on page 130 for additional information.

Q: What will happen to the preferred share purchase rights attached to Health Net common stock?

A: Prior to the completion of the merger, Health Net will terminate the rights agreement by and between Health Net and Wells Fargo Bank, N.A., which is referred to as the Health Net rights agreement. In connection with such termination, all of the rights to purchase Series A Junior Preferred Stock of Health Net will be cancelled without any consideration therefor. Prior to the execution and delivery of the merger agreement, the Health Net rights agreement was amended in an action approved by the board of directors of Health Net, which is referred to as the Health Net Board, such that the restrictions set forth in the Health Net rights agreement would not apply to the mergers, the merger agreement, the Health Net Voting Agreement (as defined below), Centene, Merger Sub I or Merger Sub II.

Q: When do Health Net and Centene expect to complete the transaction?

A: Centene and Health Net are working to complete the transaction as soon as practicable. We currently expect that the transaction will be completed by early 2016. Neither Centene nor Health Net can predict, however, the actual date on which the transaction will be completed because it is subject to conditions beyond each company’s control, including federal and state regulatory approvals. See “The Merger Agreement—Conditions to the Merger” beginning on page 156.

Q: What am I being asked to vote on, and why is this approval necessary?

A: Centene stockholders are being asked to vote on the following proposals:

1. to approve the issuance of Centene common stock, par value $0.001 per share, pursuant to the merger agreement, which is referred to as the Share Issuance proposal;

 

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2. to approve any proposal to adjourn the Centene special meeting from time to time, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the Share Issuance proposal, which is referred to as the Centene Adjournment proposal; and

3. to approve an amendment to Centene’s certificate of incorporation, as amended, to increase the number of authorized shares of Centene common stock from 200 million to 400 million, the full text of which is attached as Annex H to this joint proxy statement/prospectus, which is referred to as the Charter Amendment proposal.

Approval of the Share Issuance proposal by Centene stockholders is required to complete the merger. Approval of the Charter Amendment proposal is not required to complete the merger.

Health Net stockholders are being asked to vote on the following proposals:

1. to adopt the merger agreement, which is referred to as the Merger proposal;

2. to approve, on an advisory basis, the merger-related compensation arrangements of Health Net’s named executive officers, which is referred to as the Merger-Related Compensation proposal; and

3. to approve any proposal to adjourn the Health Net special meeting from time to time, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the Merger proposal, which is referred to as the Health Net Adjournment proposal.

Approval of the Merger proposal by Health Net stockholders is required for completion of the merger.

The Share Issuance proposal and the Merger proposal are collectively referred to as the “Merger-Related” proposals.

Q: What vote is required to approve each proposal at the Centene Special Meeting?

A: The Share Issuance proposal: The affirmative vote of holders of a majority of the votes cast by the shares of Centene common stock represented (in person or by proxy) at the Centene special meeting and entitled to vote on the proposal is required to approve the Share Issuance proposal, which is referred to as the Centene Stockholder Approval.

The Centene Adjournment proposal: If a quorum is not present, the affirmative vote of holders of a majority of the shares of Centene common stock represented (in person or by proxy) at the Centene special meeting and entitled to vote on the proposal is required to approve the Centene Adjournment proposal. If a quorum is present, the affirmative vote of holders of a majority of the votes cast by the shares of Centene common stock represented (in person or by proxy) at the Centene special meeting and entitled to vote on the proposal is required to approve the Centene Adjournment proposal.

The Charter Amendment proposal: The affirmative vote of holders of a majority of the shares of Centene common stock outstanding and entitled to vote on the record date for the Centene special meeting is required to approve the Charter Amendment proposal.

Q: Have any Centene stockholders agreed to vote their shares in favor of any of the Centene proposals?

A: Yes. Michael F. Neidorff, President and Chief Executive Officer of Centene, who is referred to herein as the Centene Supporting Stockholder, entered into a voting agreement with Health Net, which is referred to as the Centene Voting Agreement, pursuant to which the Centene Supporting Stockholder agreed, among other things, to (a) appear at each meeting of the stockholders of Centene or otherwise cause all of the shares beneficially owned at such time by the Centene Supporting Stockholder to be counted as present thereat for purposes of calculating a quorum, and respond to each request by Centene for written consent, if any; and (b) vote or cause to be voted (or deliver or cause to be delivered a written consent with respect to) all shares beneficially owned at

 

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such time by the Centene Supporting Stockholder (i) for the Share Issuance proposal and any actions in furtherance thereof at any meeting of the stockholders of Centene, and at any adjournment or postponement thereof, at which the Share Issuance proposal or the other transactions contemplated by the merger agreement and other related agreements (or any amended version thereof), or such other actions, are submitted for the consideration and vote of the stockholders of Centene (or in response to a request by Centene for written consent with respect thereto), and (ii) against (A) any takeover proposal in respect of Centene and (B) any other corporate action the consummation of which would frustrate the purposes, or prevent or materially delay the consummation, of the transactions contemplated by the merger agreement. The Centene Voting Agreement terminates in certain circumstances specified therein. As of the close of business on September 14, 2015, the most recent practicable date for which such information was available, the Centene Supporting Stockholder has the power to vote and is the beneficial owner of approximately 0.8% and 2.9%, respectively, of the issued and outstanding shares of Centene common stock. The percentage of shares of Centene common stock that the Centene Supporting Stockholder has the power to vote or beneficially owns as of the record date is not expected to be meaningfully different from the percentage as of September 14, 2015. For a discussion of the Centene Voting Agreement, see “The Centene Voting Agreement” beginning on page 165.

Q: What vote is required to approve each proposal at the Health Net Special Meeting?

A: The Merger proposal: The affirmative vote of holders of a majority of the shares of Health Net common stock outstanding and entitled to vote on the record date for the Health Net special meeting is required to approve the Merger proposal, which is referred to as the Health Net Stockholder Approval.

The Merger-Related Compensation proposal: The affirmative vote of holders of a majority of the votes cast by stockholders of Health Net entitled to vote thereon, represented (in person or by proxy) at the Health Net special meeting, is required to approve the Merger-Related Compensation proposal. Because the vote on the Merger-Related Compensation proposal is advisory only, it will not be binding on either Health Net or Centene. Accordingly, if the merger agreement is adopted and the merger is completed, the merger-related compensation will be payable to Health Net’s named executive officers, subject only to the conditions applicable thereto, regardless of the outcome of the non-binding, advisory vote of Health Net’s stockholders.

The Health Net Adjournment proposal: If a quorum is not present, the affirmative vote of holders of a majority of the votes entitled to be cast by holders of shares of Health Net common stock represented (in person or by proxy) at the Health Net special meeting is required to approve the Health Net Adjournment proposal. If a quorum is present, the affirmative vote of holders of a majority of the votes cast by the shares of Health Net common stock represented (in person or by proxy) at the Health Net special meeting and entitled to vote on the proposal is required to approve the Health Net Adjournment proposal.

Q: Have any Health Net stockholders agreed to vote their shares in favor of any of the Health Net proposals?

A: Yes. Jay M. Gellert, President and Chief Executive Officer of Health Net, who is referred to herein as the Health Net Supporting Stockholder, entered into a voting agreement with Centene, which is referred to as the Health Net Voting Agreement, pursuant to which the Health Net Supporting Stockholder agreed, among other things, to (a) appear at each meeting of the stockholders of Health Net or otherwise cause all of the shares beneficially owned at such time by the Health Net Supporting Stockholder to be counted as present thereat for purposes of calculating a quorum, and respond to each request by Health Net for written consent, if any; and (b) vote or cause to be voted (or deliver or cause to be delivered a written consent with respect to) all shares beneficially owned at such time by the Health Net Supporting Stockholder (i) for the adoption of the merger agreement, the merger and other transactions contemplated by the merger agreement, and all agreements in furtherance of the merger and any actions in furtherance thereof at any meeting of the stockholders of Health Net, and at any adjournment or postponement thereof, at which the merger agreement and other related agreements (or any amended version thereof), or such other actions, are submitted for the consideration and vote

 

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of the stockholders of Health Net (or in response to a request by Health Net for written consent with respect thereto), and (ii) against (A) any takeover proposal in respect of Health Net and (B) any other corporate action the consummation of which would frustrate the purposes, or prevent or materially delay the consummation, of the transactions contemplated by the merger agreement. The Health Net Voting Agreement terminates in certain circumstances specified therein. As of the close of business on September 14, 2015, the most recent practicable date for which such information was available, the Health Net Supporting Stockholder has the power to vote and is the beneficial owner of approximately 1.3% and 2.1%, respectively, of the issued and outstanding shares of Health Net common stock. The percentage of shares of Health Net common stock that the Health Net Supporting Stockholder has the power to vote or beneficially owns as of the record date is not expected to be meaningfully different from the percentage as of September 14, 2015. For a discussion of the Health Net Voting Agreement, see “The Health Net Voting Agreement” beginning on page 168.

Q: What happens if the non-binding advisory proposal to approve compensation that will or may be paid or provided by Health Net to its named executive officers in connection with the merger is not approved?

A: Approval, on an advisory (non-binding basis), of compensation that will or may be paid or provided by Health Net to its named executive officers in connection with the merger is not a condition to completion of the merger. The vote is an advisory vote and is not binding. If the merger is completed, Health Net may pay “compensation in connection with the merger” to its named executive officers even if Health Net stockholders fail to approve the non-binding advisory proposal to approve compensation that will or may be paid or provided by Health Net to its named executive officers in connection with the merger.

Q: What constitutes a quorum?

A: The presence at the Centene special meeting, in person or by proxy, of the holders of a majority of the shares of Centene common stock issued and outstanding on the record date for the Centene special meeting and entitled to vote at the meeting will constitute a quorum for the transaction of business at the Centene special meeting. The presence at the Health Net special meeting, in person or by proxy, of the holders of a majority of Health Net votes entitled to be cast by stockholders entitled to vote on the record date for the Health Net special meeting will constitute a quorum for the transaction of business at the Health Net special meeting. Abstentions (which are described below) will count for the purpose of determining the presence of a quorum for the transaction of business at each special meeting. Shares held in “street name” by brokers, banks or other nominees that do not have discretionary authority to vote the shares as to a particular matter and have not received voting instructions from their clients, which are referred to as broker non-votes, will be counted for the purpose of determining the presence of a quorum for the transaction of business at either special meeting to the extent there are any such broker non-votes.

Q: How does the Centene Board recommend that I vote?

A: The board of directors of Centene, which is referred to as the Centene Board, unanimously recommends that holders of Centene common stock vote “FOR” the Share Issuance proposal, “FOR” the Centene Adjournment proposal and “FOR” the Charter Amendment proposal.

Q: How does the Health Net Board recommend that I vote?

A: The Health Net Board unanimously recommends that Health Net stockholders vote “FOR” the Merger proposal and “FOR” the Health Net Adjournment proposal. In addition, the Health Net Board unanimously recommends that holders of Health Net common stock vote “FOR” the Merger-Related Compensation proposal to approve, on an advisory (non-binding) basis, any “golden parachute” compensation arrangement that may be paid or become payable to Health Net’s named executive officers that is based on or otherwise relates to the merger or contemplated by the merger agreement.

 

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Q: Is my vote required to approve the subsequent merger?

A: No. The constituent parties to the subsequent merger have approved the consummation of the subsequent merger. The subsequent merger is contingent upon (i) the consummation of the merger and (ii) Health Net’s receipt before the effective time of the merger of an opinion from Morgan Lewis, Health Net’s outside legal counsel, that the mergers will constitute a reorganization under Section 368(a) of the Code.

Q: What do I need to do now?

A: After carefully reading and considering the information contained in this joint proxy statement/prospectus, please vote your shares as soon as possible so that your shares will be represented at your respective company’s special meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker, bank or other nominee.

Please do not submit your Health Net stock certificates at this time. If the merger is completed, you will receive instructions for surrendering your Health Net stock certificates in exchange for shares of Centene common stock from the exchange agent.

Q: How do I vote?

A: If you are a stockholder of record of Centene as of September 22, 2015, which is referred to as the Centene record date, or a stockholder of Health Net as of September 22, 2015, which is referred to as the Health Net record date, you may submit your proxy before your respective company’s special meeting in one of the following ways:

 

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Telephone voting, use the toll-free number shown on your proxy card;

 

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Via the Internet, visit the website shown on your proxy card to vote via the Internet; or

 

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Mail, complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope.

If you are a stockholder of record, you may also cast your vote in person at your respective company’s special meeting.

If your shares are held in “street name,” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” stockholders who wish to vote at the meeting will need to obtain a “legal proxy” form from their broker, bank or other nominee.

Q: When and where are the Centene and Health Net special meetings of stockholders? What must I bring to attend the special meeting?

A: The special meeting of Centene stockholders will be held at Centene Plaza, 7700 Forsyth Boulevard, St. Louis, Missouri 63105 at 12:00 p.m., Central Time, on October 23, 2015. Subject to space availability, all Centene stockholders as of the Centene record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at 11:30 a.m., Central Time.

The special meeting of Health Net stockholders will be held at 21281 Burbank Boulevard, Woodland Hills, California 91367 at 10:00 a.m., Pacific Time, on October 23, 2015. Subject to space availability, all Health Net stockholders as of the Health Net record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at 9:30 a.m., Pacific Time.

If you wish to attend your respective company’s special meeting, you must bring photo identification. If you hold your shares through a broker, bank or other nominee, you must also bring proof of ownership such as the voting instruction form from your broker or other nominee or an account statement.

 

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Q: If my shares are held in “street name” by a broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?

A: If your shares are held in “street name” in a stock brokerage account or by a broker, bank or other nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Centene or Health Net or by voting in person at your respective company’s special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Your broker, bank or other nominee is obligated to provide you with a voting instruction card for you to use.

Under the rules of the NYSE, brokers who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the NYSE determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the Health Net special meeting, the Share Issuance proposal and the Centene Adjournment proposal are such “non-routine” matters and that the Charter Amendment proposal is a “routine” matter. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.

If you are a Centene stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

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your broker, bank or other nominee may not vote your shares on the Share Issuance proposal, which broker non-votes, if any, will have no effect on the vote count for this proposal (assuming a quorum is present);

 

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your broker, bank or other nominee may not vote your shares on the Centene Adjournment proposal, which broker non-votes, if any, will have no effect on the vote count for this proposal (regardless of whether a quorum is present); and

 

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your broker, bank or other nominee may vote your shares on the Charter Amendment proposal.

If you are a Health Net stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

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your broker, bank or other nominee may not vote your shares on the Merger proposal, which broker non-votes, if any, will have the same effect as a vote “AGAINST” this proposal;

 

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your broker, bank or other nominee may not vote your shares on the Merger-Related Compensation proposal, which broker non-votes, if any, will have no effect on the vote count for this proposal (assuming a quorum is present); and

 

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your broker, bank or other nominee may not vote your shares on the Health Net Adjournment proposal, which broker non-votes, if any, will have no effect on the vote count for this proposal if a quorum is present, and will have the same effect as a vote “AGAINST” this proposal if a quorum is not present.

Q: How do I vote my shares of Health Net common stock held through Health Net’s 401(k) Plan?

A: If you hold shares of Health Net common stock through Health Net’s 401(k) Plan, you may vote your shares by telephone, mail or via the Internet as described above. If you vote your shares by telephone or via the Internet, your voting instructions must be received before 11:59 p.m. (Eastern Time) on October 20, 2015 in order for you to instruct the 401(k) Plan trustee how to vote your shares. If you vote your shares by mail, your voting instructions must be received before 6:00 p.m. (Eastern Time) on October 20, 2015 in order for you to instruct

 

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the 401(k) Plan trustee how to vote your shares. If you hold shares through the 401(k) Plan and do not timely submit your voting instructions by this deadline, your applicable shares will be voted in the same proportion to the shares held in the 401(k) Plan for which votes were cast.

If you hold shares of Health Net common stock through the 401(k) Plan, you may attend the Health Net special meeting. However, shares held through the 401(k) Plan can only be voted as described above, and cannot be voted in person at the Health Net special meeting.

Q: What if I fail to vote or abstain?

A: For purposes of each of the Centene special meeting and the Health Net special meeting, an abstention occurs when a stockholder attends the applicable special meeting in person and does not vote or returns a proxy with an “abstain” instruction.

Centene

Share Issuance proposal: An abstention will have no effect on the vote for the Share Issuance proposal. If a Centene stockholder is not present in person at the Centene special meeting and does not respond by proxy, it will have no effect on the vote count for the Share Issuance proposal (assuming a quorum is present).

Centene Adjournment proposal: If a quorum is not present, an abstention will have the same effect as a vote “AGAINST” the Centene Adjournment proposal. If a quorum is present, an abstention will have no effect on the vote for the Centene Adjournment proposal. If a Centene stockholder is not present in person at the Centene special meeting and does not respond by proxy, it will have no effect on the vote count for the Centene Adjournment proposal (assuming a quorum is present).

Charter Amendment proposal: An abstention or failure to vote will have the same effect as a vote cast “AGAINST” the Charter Amendment proposal.

Health Net

Merger proposal: An abstention or failure to vote will have the same effect as a vote cast “AGAINST” the Merger proposal.

Merger-Related Compensation proposal: An abstention will have no effect on the vote on the Merger-Related Compensation proposal. If a Health Net stockholder is not present in person at the Health Net special meeting and does not respond by proxy, it will have no effect on the vote count for the Merger-Related Compensation proposal (assuming a quorum is present).

Health Net Adjournment proposal: If a quorum is not present, an abstention will have the same effect as a vote cast “AGAINST” the Health Net Adjournment proposal. If a quorum is present, an abstention will have no effect on the Health Net Adjournment proposal. If a Health Net stockholder is not present in person at the Health Net special meeting and does not respond by proxy, it will have no effect on the vote count for the Health Net Adjournment proposal (assuming a quorum is present).

Q: What will happen if I return my proxy or voting instruction card without indicating how to vote?

A: If you sign and return your proxy or voting instruction card without indicating how to vote on any particular proposal, the Centene common stock represented by your proxy will be voted as recommended by the Centene Board with respect to that proposal or the Health Net common stock represented by your proxy will be voted as recommended by the Health Net Board with respect to that proposal. Unless a Centene stockholder or a Health Net stockholder, as applicable, checks the box on its proxy card to withhold discretionary authority, the applicable proxy holders may use their discretion to vote on other matters relating to the Centene special meeting or Health Net special meeting, as applicable.

 

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Q: What if I hold shares of both Centene common stock and Health Net common stock?

A: If you are a stockholder of both Centene and Health Net, you will receive two separate packages of proxy materials. A vote as a Health Net stockholder will not constitute a vote as a Centene stockholder and vice versa. Therefore, please sign, date and return all proxy cards that you receive, whether from Centene or Health Net, or vote as both a Centene stockholder and as a Health Net stockholder by Internet or telephone.

Q: May I change or revoke my vote after I have delivered my proxy or voting instruction card?

A: Yes. If you are a record holder, you may change or revoke your vote before your proxy is voted at the Centene or Health Net special meeting as described herein. You may do this in one of four ways:

 

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by sending a notice of revocation to the corporate secretary of Centene or Health Net, as applicable;

 

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by logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so;

 

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by sending a completed proxy card bearing a later date than your original proxy card; or

 

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by attending the Centene or Health Net special meeting, as applicable, and voting in person.

If you choose any of the first three methods, you must take the described action no later than the beginning of the applicable special meeting.

If your shares are held in an account at a broker, bank or other nominee or through the Health Net 401(k) Plan and you have delivered your voting instruction card to your broker, bank or other nominee, you should contact your broker, bank or other nominee, or your plan administrator to change your vote.

Q: What are the U.S. federal income tax consequences of the merger?

A: The merger and the subsequent merger, if both are consummated, are intended to constitute a single integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Code. It is a condition to Centene’s obligation to complete the subsequent merger that Health Net receive a written opinion of Morgan Lewis, Health Net’s outside legal counsel, to the effect that the mergers will qualify as a reorganization described in Section 368(a) of the Code. If the subsequent merger is consummated, in general no gain or loss will be recognized by U.S. holders of Health Net common stock upon the exchange of Health Net common stock for Centene common stock except that U.S. holders will recognize gain (but not loss) to the extent such U.S. holders receive cash (including the cash portion of the merger consideration and any cash received in lieu of a fractional share). If the subsequent merger is not consummated, U.S. holders of Health Net common stock would recognize gain or loss equal to the difference, if any, between (i) the sum of the fair market value of the Centene common stock received in the merger and any cash received and (ii) such U.S. holder’s adjusted tax basis in the Health Net common stock surrendered in exchange therefor. You are strongly urged to consult with a tax advisor to determine the particular U.S. federal, state or local or foreign income or other tax consequences of the mergers to you. You will not know at the time of your respective vote whether the subsequent merger will take place, and therefore you will not know the precise tax treatment of the merger or mergers when you vote. See “The Merger—U.S. Federal Income Tax Consequences” beginning on page 130 for additional information.

Q: Do I have appraisal rights in connection with the transaction?

A: Under Delaware law, Centene stockholders will not be entitled to exercise any appraisal rights in connection with the merger, the subsequent merger or any other transaction described in this joint proxy statement/prospectus.

 

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Subject to the closing of the merger, record holders of Health Net common stock who do not vote in favor of the adoption of the merger agreement and otherwise comply fully with the requirements and procedures of Section 262 of the DGCL may exercise their rights of appraisal, which generally entitle stockholders to receive a cash payment equal to the fair value of their Health Net common stock exclusive of any element of value arising from the accomplishment or expectation of the mergers. The “fair value” could be higher or lower than, or the same as, the merger consideration. A detailed description of the appraisal rights and procedures available to Health Net stockholders is included in “The Merger—Appraisal Rights” beginning on page 125. The full text of Section 262 of the DGCL is attached as Annex G to this joint proxy statement/prospectus.

Q: What will happen to my Health Net stock options and other stock-based awards?

A: Upon completion of the merger:

 

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Each outstanding Health Net stock option that you hold will be cancelled in exchange for:

(i) a cash payment of $28.25 for each share of Health Net common stock subject to the option, generally reduced by an amount of cash equal to any applicable withholding taxes; and

(ii) a distribution of 0.622 of a validly issued, fully paid and non-assessable share of Centene common stock for each share of Health Net common stock subject to the option, generally reduced by a number of shares of Centene common stock with a Centene stock value equal to the aggregate exercise price of the option.

If the amount of cash that would otherwise be provided to you in respect of your Health Net stock options is not sufficient to cover the applicable withholding taxes, then the number of shares of Centene common stock that would otherwise be provided to you will be reduced to the extent necessary to cover the shortfall. If the number of shares of Centene common stock that would otherwise be provided to you in respect of your Health Net stock options is not sufficient to cover the option exercise price, then the amount of cash that would otherwise be provided to you will be reduced to the extent necessary to cover the shortfall. Any fractional shares of Centene common stock will be treated as set forth in “The Merger Agreement—Merger Consideration Received by Health Net Stockholders.”

 

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Each outstanding Health Net restricted stock unit and performance share award that you hold that either (i) is vested in accordance with its vesting schedule as of the completion of the merger or (ii) becomes vested under its terms solely as a result of the completion of the merger will be cancelled in exchange for a cash payment per share subject to the award of $28.25 and a distribution per share subject to the award of 0.622 of a validly issued, fully paid and non-assessable share of Centene common stock.

Any applicable withholding taxes resulting from this treatment of your vested Health Net restricted stock units or performance share awards will be satisfied by reducing the amount of cash that would otherwise be provided to you, but if the amount of that cash is not sufficient to cover the applicable withholding taxes, then the number of shares of Centene common stock that would otherwise be provided to you will be reduced to the extent necessary to cover the shortfall. Any fractional shares of Centene common stock will be treated as set forth in “The Merger Agreement—Merger Consideration Received by Health Net Stockholders.”

 

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Each outstanding Health Net restricted stock unit and performance share award that is not vested in accordance with its vesting schedule as of the completion of the merger and does not otherwise become vested under its terms solely as a result of the completion of the merger will be converted into an award relating to a number of shares of Centene common stock (rounded down to the nearest whole share) equal to the product of (i) the number of shares of Health Net common stock that were issuable upon the vesting of such award immediately prior to the effective time of the merger, multiplied by (ii) the rollover award exchange ratio, as described hereinafter, but will otherwise remain outstanding subject to the same terms and conditions (including time-based vesting conditions) as applied to the award

 

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immediately prior to the completion of the merger. However, any outstanding performance criteria relating to converted Health Net performance share awards will be deemed to have been achieved at the target level. The “rollover award exchange ratio” is equal to the sum of (x) 0.622 and (y) the quotient of (1) $28.25 divided by (2) the Centene stock value.

Q: What happens if I sell my shares of Health Net common stock after the record date but before the Health Net special meeting?

A: The record date for the Health Net special meeting (the close of business on September 22, 2015) is earlier than the date of the Health Net special meeting and earlier than the date that the merger is expected to be completed. If you sell or otherwise transfer your shares of Health Net common stock after the record date but before the date of the Health Net special meeting, you will retain your right to vote at the Health Net special meeting. However, you will not have the right to receive the merger consideration to be received by Health Net stockholders in the merger. In order to receive the merger consideration, you must hold your shares through completion of the merger.

Q: What happens if I sell my Centene shares after the record date but before the Centene special meeting?

A: The record date for the Centene special meeting (the close of business on September 22, 2015) is earlier than the date of the Centene special meeting. If you sell or otherwise transfer your Centene common shares after the record date but before the date of the Centene special meeting, you will retain your right to vote at the Centene special meeting.

Q: Whom should I contact if I have any questions about the proxy materials or voting?

A: If you have any questions about the proxy materials, or if you need assistance submitting your proxy or voting your shares or need additional copies of this joint proxy statement/prospectus or the enclosed proxy card, you should contact the proxy solicitation agent for the company in which you hold shares.

If you are a Centene stockholder, you should contact the proxy solicitation agents for Centene, at:

 

Innisfree M&A Incorporated (877) 825-8772 Bankers and brokers call collect at (212) 750-5833		Morrow & Co., LLC (800) 662-5200 Bankers and brokers call collect at (203) 658-9400

If you are a Health Net stockholder, you should contact MacKenzie Partners, Inc., the proxy solicitation agent for Health Net, at (800) 322-2885 (toll-free) or (212) 929-5500 (collect).

 

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SELECTED HISTORICAL FINANCIAL DATA

The following selected historical financial information is being provided to assist you in your analysis of the financial aspects of the transaction.

The Centene annual historical information is derived from the audited consolidated financial statements of Centene as of and for each of the years in the five-year period ended December 31, 2014. The assets, liabilities and results of operations of Kentucky Spirit Health Plan and University Health Plans have been classified as discontinued operations for all periods presented.

The Health Net annual historical information is derived from the audited consolidated financial statements of Health Net as of and for each of the years in the five-year period ended December 31, 2014. On April 1, 2012, Health Net completed the sale of the business operations of its Medicare PDP business, which is referred to as the PDP Business, to Pennsylvania Life Insurance Company, a subsidiary of CVS Caremark Corporation. As such, the selected historical financial information included below of Health Net includes the results of the PDP Business for the period from January 1, 2010 through March 31, 2012, and does not include the results of the PDP Business for the period from April 1, 2012 through December 31, 2014.

The data as of and for the six months ended June 30, 2015 and 2014 has been derived from the unaudited interim financial statements of both Centene and Health Net and, in the opinion of each company’s management, includes all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the interim period.

The information is only a summary and should be read in conjunction with each company’s historical consolidated financial statements and related notes contained in the Centene and Health Net annual reports on Form 10-K for the year ended December 31, 2014 and quarterly reports on Form 10-Q for the period ended June 30, 2015, which are incorporated by reference into this joint proxy statement/prospectus, as well as other information that has been filed with the SEC. See “Where You Can Find More Information” beginning on page 220 of this joint proxy statement/prospectus for information on where you can obtain copies of this information. The historical results included below and elsewhere in this joint proxy statement/prospectus are not necessarily indicative of the future performance of Centene, Health Net or the combined company.

 

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Centene Corporation

 

		As of and for the
(in millions, except share data)		Six Months Ended June 30,								Year Ended December 31,
		2015				2014				2014				2013				2012				2011				2010
		(unaudited)
Statement of operations data:
Premium and service revenues (1)		$	9,945			$	7,093			$	15,667			$	10,526			$	7,682			$	5,052			$	4,284
Earnings from continuing operations, net of income tax expense			153				80				261				162				76				117				94
Discontinued operations, net of income tax expense (benefit)			(1	)			1				3				4				(87	)			(9	)			4
Net earnings (loss)			152				81				264				166				(11	)			108				98
(Earnings) loss attributable to noncontrolling interests			(1	)			1				7				(1	)			13				3				(3	)
Net earnings attributable to Centene Corporation		$	151			$	82			$	271			$	165			$	2			$	111			$	95
Net earnings (loss) per common share attributable to Centene Corporation:
Basic:
Continuing operations		$	1.28			$	0.70			$	2.30			$	1.49			$	0.86			$	1.20			$	0.93
Discontinued operations			(0.01	)			0.01				0.03				0.03				(0.84	)			(0.09	)			0.04
Basic earnings per common share		$	1.27			$	0.71			$	2.33			$	1.52			$	0.02			$	1.11			$	0.97
Diluted:
Continuing operations		$	1.24			$	0.68			$	2.23			$	1.43			$	0.83			$	1.15			$	0.90
Discontinued operations			(0.01	)			0.01				0.02				0.04				(0.81	)			(0.09	)			0.04
Diluted earnings per common share		$	1.23			$	0.69			$	2.25			$	1.47			$	0.02			$	1.06			$	0.94
Consolidated Balance Sheet Data:
Cash and cash equivalents (1)		$	1,967			$	1,200			$	1,546			$	974			$	746			$	494			$	434
Investments and restricted deposits (1)			1,782				1,203				1,557				941				727				653				640
Total assets			7,022				4,683				5,838				3,529				2,774				2,190				1,944
Medical claims liability (1)			2,092				1,394				1,723				1,112				815				519				457
Long term debt (1)			1,139				885				888				666				535				348				328
Total stockholders’ equity			1,940				1,486				1,743				1,243				954				936				797

 

(1)	From Continuing Operations

 

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Health Net, Inc.

 

		As of and for the
(in millions, except share data)		Six Months Ended June 30,								Year Ended December 31,
		2015				2014				2014				2013				2012				2011				2010
		(unaudited)
Revenues:
Health plan services premiums		$	7,724			$	6,143			$	13,361			$	10,377			$	10,459			$	9,879			$	9,492
Government contracts			296				298				604				572				689				1,417				3,344
Net Income		$	88			$	150			$	146			$	170			$	122			$	72			$	204
Income Summary (1):
Net Income Per Share—Basic (1):
Income from continuing operations		$	1.15			$	1.87			$	1.83			$	2.14			$	0.31			$	0.69			$	1.75
Income of discontinued operation, net of tax (2)			—				—				—				—				1.18				0.12				0.33
Net income		$	1.15			$	1.87			$	1.83			$	2.14			$	1.49			$	0.81			$	2.08
Net Income Per Share—Diluted (1):
Income from continuing operations		$	1.13			$	1.85			$	1.80			$	2.12			$	0.31			$	0.68			$	1.73
Income of discontinued operation, net of tax (2)			—				—				—				—				1.16				0.12				0.33
Net income		$	1.13			$	1.85			$	1.80			$	2.12			$	1.47			$	0.80			$	2.06
Consolidated Balance Sheet Data:
Cash and cash equivalents and investments available for sale		$	3,135			$	2,273			$	2,665			$	2,060			$	2,153			$	1,790			$	2,022
Total assets			5,860				4,777				5,396				3,929				3,934				3,608				4,132
Loans payable—Long term			210				100				100				100				100				113				—
Senior notes payable			400				399				400				399				399				399				399
Total stockholders’ equity (3)			1,712				1,822				1,709				1,629				1,557				1,443				1,694

 

(1)

The six months ended June 30, 2015 was impacted by $73.7 million pretax expenses primarily related to the Cognizant Transaction. The six months ended June 30, 2014 reflects a tax benefit of $72.6 million, net of adjustments to reserve for uncertain tax benefits, created by a loss on the stock of one of our subsidiaries. For 2014, includes an $88.5 million pretax asset impairment primarily related to Health Net’s assets held for sale in connection with the Cognizant Transaction and $96.8 million of pretax expenses primarily related to the Cognizant Transaction. Health Net’s operating results for the year ended December 31, 2014 were also impacted by fees imposed under the Patient Protection and Affordable Care Act, which we refer to as the ACA, including $141.4 million in amortization of deferred costs of health insurer fee and $97.6 million in other ACA fees. For 2013, Health Net had approximately $56 million in favorable reserve developments related to prior years. These reserve developments related to prior years when considered together with the provision for adverse deviation recorded as of December 31, 2013, did not have a material impact on Health Net’s operating results or financial condition. In addition, Health Net’s operating results for the year ended December 31, 2013 were impacted by $12.0 million in pretax costs primarily related to Health Net’s continuing efforts to address scale issues. For 2012, includes a gain on sale of discontinued operation in the amount of $114.8 million after-tax. Health Net’s operating results for the year ended December 31, 2012 were impacted by approximately $35 million of adverse development related to prior years recorded as part of Health Net’s health care cost. In addition, Health Net’s operating results for the year ended December 31, 2012 were impacted by pretax costs of $35.6 million related to Health Net’s G&A cost reduction efforts, a $5.0 million expense related to the early termination of a medical management contract and $1.3 million in

 

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litigation-related expenses net of an insurance reimbursement. For 2011, includes a $181 million pretax expense related to a litigation judgment in the first quarter. In addition, Health Net’s operating results for the year ended December 31, 2011 were impacted by a $40.8 million favorable adjustment to loss on sale of Health Net’s Northeast health plan subsidiaries that were sold on December 11, 2009 and a $6.8 million benefit from litigation reserve adjustments, partially offset by pretax costs of $25.2 million related to Health Net’s G&A cost reduction efforts. For 2010, includes pretax charges of $61.2 million related to Health Net’s operations strategy and other cost management initiatives, and $9.0 million in early debt extinguishment and related interest rate swap termination costs, partially reduced by a $46.5 million benefit from litigation reserve adjustments and a $42.0 million adjustment to loss on sale of Northeast health plan subsidiaries.

(2)	Includes the operating results of Health Net’s PDP Business that was sold on April 1, 2012.

(3)	No cash dividends were declared in any of the periods presented.

 

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SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

The transaction will be accounted for under the acquisition method of accounting, which means the assets and liabilities of Health Net will be recorded, as of the completion of the transaction, at their respective fair values and added to those of Centene. For a more detailed description of the acquisition method of accounting, see “The Merger—Accounting Treatment” on page 122 of this joint proxy statement/prospectus.

We have presented below selected unaudited pro forma combined consolidated financial information, which is referred to as Selected Pro Forma Financial Information, that reflects the acquisition method of accounting and gives effect to the transaction, in the case of the statement of operations information, as though the transaction had occurred as of January 1, 2014 and, in the case of the balance sheet information, as though the transaction had occurred as of June 30, 2015.

The unaudited pro forma combined consolidated financial information, which is referred to as Unaudited Pro Forma Financial Information, has been prepared giving effect to the payment of the merger consideration in exchange for each share of Health Net common stock outstanding as of the close of business on September 14, 2015, the most recent practicable date for which such information was available. The number of shares of Health Net common stock outstanding as of the record date is not expected to be meaningfully different from the number as of September 14, 2015.

The Unaudited Pro Forma Financial Information would have been different had the companies actually been combined as of January 1, 2014 or June 30, 2015. For example, the Selected Pro Forma Financial Information does not reflect cost savings that may result from the transaction. The combined pro forma financial information has been presented for illustrative purposes only and is based on assumptions and estimates considered appropriate by Centene’s management; however, it is not necessarily indicative of the results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or of the future consolidated results of operations or of the financial position of the combined company. The following Selected Pro Forma Financial Information has been derived from, and should be read in conjunction with, the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements and related notes beginning on page 188 of this joint proxy statement/prospectus.

 

		Six Months Ended June 30, 2015				Year Ended December 31, 2014
		(in millions, except share data)
Combined Consolidated Statement of Operations Information:
Total Revenues		$	18,657			$	30,525
Earnings from operations			401				488
Net earnings attributable to common stockholders			137				240
Net earnings per common share:
Basic		$	0.82			$	1.45
Diluted		$	0.79			$	1.41
Weighted average shares outstanding
Basic			167,996,171				165,447,666
Diluted			172,709,431				170,297,711

 

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		As of June 30, 2015
		(in millions)
Combined Consolidated Balance Sheet Information
Cash and cash equivalents		$	2,841
Investments and restricted deposits			4,161
Goodwill and Intangible assets, net			5,689
Total assets			17,117
Medical claims liability			3,850
Long term debt			4,131
Total stockholders’ equity			4,870

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA COMBINED PER SHARE INFORMATION

The following table sets forth selected historical per share information of Centene and Health Net and unaudited pro forma combined consolidated per share information reflecting the transaction between Centene and Health Net, under the acquisition method of accounting, and the issuance of 0.622 of a validly issued, fully paid and non-assessable share of Centene common stock in exchange for each share of Health Net common stock. You should read this information in conjunction with the selected historical financial information, included elsewhere in this joint proxy statement/prospectus, and the historical financial statements of Centene and Health Net and related notes contained in the Centene and Health Net annual reports on Form 10-K for the year ended December 31, 2014 and the quarterly reports on Form 10-Q for the period ended June 30, 2015, which are incorporated by reference into this joint proxy statement/prospectus. The unaudited Centene pro forma combined consolidated per share information is derived from, and should be read in conjunction with, the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements and related notes beginning on page 188 of this joint proxy statement/prospectus. The historical per share information is derived from audited financial statements of Centene and Health Net as of and for the year ended December 31, 2014 and the unaudited financial statements for the six months ended June 30, 2015.

The unaudited pro forma combined consolidated per share information would have been different had the companies actually been combined as of the beginning of the periods presented. For example, the unaudited pro forma combined consolidated per share information does not reflect cost savings that may result from the transaction. The unaudited pro forma combined consolidated per share information has been presented for illustrative purposes only and is based on assumptions and estimates considered appropriate by Centene’s management; however, it is not necessarily indicative of the results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or of the future consolidated results of operations or of the financial position of the combined company.

 

		As of/For the Six Months Ended June 30, 2015				As of/For the Year Ended December 31, 2014
Centene Historical per Common Share Data:
Net income-basic		$	1.27			$	2.33
Net income-diluted			1.23				2.25
Book value (1)			16.29				14.72
Health Net Historical per Common Share Data:
Net income-basic		$	1.15			$	1.83
Net income-diluted			1.13				1.80
Book value (1)			22.15				21.89
Unaudited Pro Forma Combined per Centene Common Share Data:
Net income-basic		$	0.82			$	1.45
Net income-diluted			0.79				1.41
Book value (1)			28.96				N/A
Unaudited Pro Forma Combined per Health Net Equivalent Share Data:
Net income-basic (2)		$	0.51			$	0.90
Net income-diluted (2)			0.49				0.88
Book value (1)(2)			18.01				N/A

 

(1)	Amount is calculated by dividing shareholders’ equity by common shares or shares of common stock, as applicable, outstanding. Pro forma book value per share as of December 31, 2014, is not meaningful as the estimated pro forma adjustments were calculated as of June 30, 2015.

(2)	Amounts calculated by multiplying unaudited pro forma combined per share amounts by the exchange ratio in the merger (0.622 of a Centene common share for each share of Health Net common stock).

 

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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Market Prices

The table below sets forth, for the calendar quarters indicated, the high and low sales prices per share of Centene common stock and Health Net common stock, both of which trade on the NYSE under the symbols “CNC” and “HNT,” respectively.

 

		Centene Common Stock								Health Net Common Stock
		High				Low				High				Low
2013:
First Calendar Quarter		$	24.28			$	20.29			$	29.57			$	24.16
Second Calendar Quarter			26.37				21.07				33.30				26.69
Third Calendar Quarter			32.52				26.01				33.90				29.11
Fourth Calendar Quarter			33.92				27.06				33.52				25.40
2014:
First Calendar Quarter		$	33.18			$	28.44			$	35.70			$	29.23
Second Calendar Quarter			38.84				27.56				42.33				30.39
Third Calendar Quarter			41.99				35.49				47.95				40.84
Fourth Calendar Quarter			54.24				37.53				55.19				42.61
2015:
First Calendar Quarter		$	71.66			$	51.73			$	61.55			$	50.79
Second Calendar Quarter			82.18				61.85				65.33				52.40
Third Calendar Quarter (through September 18, 2015)			83.00				57.57				76.67				61.96

On February 2, 2015, the Centene Board declared a two-for-one split of Centene common stock in the form of a 100% stock dividend distributed February 19, 2015 to stockholders of record on February 12, 2015. All share and per share information presented in this filing has been adjusted for the two-for-one stock split.

On July 1, 2015, the last trading day before the public announcement of the signing of the merger agreement, the closing sale price per share of Centene common stock was $80.90 and the closing sale price per share of Health Net common stock was $65.06, in each case on the NYSE. On September 18, 2015, the latest practicable date before the date of this joint proxy statement/prospectus, the closing sale price per share of Centene common stock was $62.35 and the closing sale price per share of Health Net common stock was $65.16, in each case on the NYSE. The table below sets forth the equivalent market value per share of Health Net common stock on July 1, 2015 and September 18, 2015, as determined by multiplying the closing prices of shares of Centene common stock on those dates by the exchange ratio of 0.622 and adding the cash portion of the merger consideration of $28.25 per share, without interest. Although the exchange ratio is fixed, the market prices of Centene common stock and Health Net common stock will fluctuate before the special meetings and before the merger is completed. The market value of the merger consideration ultimately received by Health Net stockholders will depend on the closing price of Centene common stock on the day such stockholders receive their shares of Centene common stock pursuant to the merger agreement.

 

		Centene Common Stock				Health Net Common Stock				Implied Per Share Value of Merger Consideration
July 1, 2015		$	80.90			$	65.06			$	78.57
September 18, 2015		$	62.35			$	65.16			$	67.03

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prospectus to the date of the Health Net special meeting and the date the merger is completed and thereafter. No assurance can be given concerning the market prices of Centene common stock or Health Net common stock before completion of the merger or Centene common stock after completion of the merger. The exchange ratio is fixed in the merger agreement, but the market price of Centene common stock (and therefore the value of the merger consideration) when received by Health Net stockholders after the merger is completed could be greater than, less than or the same as shown in the table above. Accordingly, Health Net stockholders are advised to obtain current market quotations for Centene common stock and Health Net common stock in deciding whether to vote for adoption of the merger agreement.

Dividends

Centene has never declared any cash dividends on its capital stock and currently anticipates retaining any future earnings for the development, operation, and expansion of its business. Health Net has not paid any dividends on its common stock during fiscal years 2013, 2014 and year-to-date fiscal 2015 and has no present intention of paying any dividends on its common stock. However, the board of directors of each of Centene and Health Net retains its right to review the dividend policy periodically subject to, among other things, the limitations set forth in the merger agreement.

 

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CAUTIONARY NOTE 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 merger. These statements may be made directly in this joint proxy statement/prospectus or may be incorporated by reference to other documents and may include statements for the period after completion of the 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 following:

 

•

The expected closing date of the transaction;

 

•

The possibility that the estimated synergies (as described hereinafter) and value creation from the 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 ACA 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 Centene’s stockholders and Health Net’s stockholders;

 

•

The risk that financing for the transaction may not be available on favorable terms;

 

•

Risks and uncertainties discussed in the reports that Centene and Health Net have filed with the SEC; and

 

•

Risks and uncertainties set forth in or incorporated by reference into this joint proxy statement/prospectus in the section entitled “Risk Factors” beginning on page 44.

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 document could cause Centene’s and Health Net’s plans with respect to the 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 document are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this joint proxy statement/prospectus or, in the case of a document incorporated by reference, as of the date of that document. Neither Centene nor Health Net assumes any

 

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obligation to update the information contained in this document (whether as a result of new information, future events or otherwise), except as required by applicable law. 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 subsequent Quarterly Reports on Form 10-Q and Current Reports on 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 subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this joint proxy statement/prospectus, including, among others, the matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 42, you should carefully consider the following risk factors before deciding whether to vote for the proposal to adopt the merger agreement, in the case of Health Net stockholders, or for the proposal to approve the issuance of the shares of Centene common stock forming part of the merger consideration, in the case of Centene stockholders. In addition, you should read and consider the risks associated with each of the businesses of Health Net and Centene because these risks will relate to the combined company following the completion of the merger. Descriptions of some of these risks can be found in the respective Annual Reports of Centene and Health Net on Form 10-K for the fiscal year ended December 31, 2014, as such risks may be updated or supplemented in each company’s subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, which are incorporated by reference into this joint proxy statement/prospectus. You should also consider the other information in this document and the other documents incorporated by reference into this document. See the section entitled “Where You Can Find More Information” beginning on page 220.

Risks Related to the Merger

The merger is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the merger could have material adverse effects on Centene and Health Net.

The completion of the merger is subject to a number of conditions, including, among others, the approval by the Centene stockholders of the issuance of the shares of its common stock forming part of the merger consideration, the approval by Health Net stockholders of the adoption of the merger agreement and the receipt of certain other regulatory approvals, which make the completion and timing of the completion of the merger uncertain. See the section entitled “The Merger Agreement—Conditions to the Merger,” beginning on page 156, for a more detailed discussion. Also, either Centene or Health Net may terminate the merger agreement if the merger has not been consummated by July 2, 2016, except that this right to terminate the merger agreement will not be available to any party whose failure to perform any obligation under the merger agreement has been the cause of or the primary factor that resulted in the failure of the merger to be consummated on or before that date.

If the merger is not completed, Centene’s and Health Net’s respective ongoing businesses may be materially adversely affected and, without realizing any of the benefits of having completed the merger, Centene and Health Net will be subject to a number of risks, including the following:

 

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the market price of Centene common stock or Health Net common stock could decline;

 

•

Centene or Health Net could owe substantial termination fees to the other party under certain circumstances;

 

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if the merger agreement is terminated and the Centene Board or the Health Net Board seeks another business combination, Centene stockholders and Health Net stockholders cannot be certain that Centene or Health Net will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms that the other party has agreed to in the merger agreement;

 

•

time and resources committed by Centene’s and Health Net’s respective management to matters relating to the merger could otherwise have been devoted to pursuing other beneficial opportunities for their respective companies;

 

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Centene or Health Net may experience negative reactions from the financial markets or from their respective customers or employees; and

 

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Centene and Health Net will be required to pay their respective costs relating to the merger, such as legal, accounting, financial advisory and printing fees, whether or not the merger is completed.

 

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In addition, if the merger is not completed, Centene or Health Net could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against Centene or Health Net to perform their respective obligations under the Merger Agreement. The materialization of any of these risks could adversely impact Centene and Health Net’s respective ongoing businesses.

Similarly, delays in the completion of the merger could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the merger.

The merger agreement contains provisions that limit each party’s ability to pursue alternatives to the merger, could discourage a potential competing acquiror of either Centene or Health Net from making a favorable alternative transaction proposal and, in specified circumstances, could require either party to pay substantial termination fees to the other party.

The merger agreement contains certain provisions that restrict each of Centene’s and Health Net’s ability to initiate, solicit, knowingly encourage or, subject to certain exceptions, engage in discussions or negotiations with respect to, or approve or recommend, any third-party proposal for an alternative transaction. Further, even if the Centene Board withdraws or qualifies its recommendation with respect to the issuance of the shares of Centene common stock forming part of the merger consideration or if the Health Net Board withdraws or qualifies its recommendation with respect to the adoption of the merger agreement, unless the merger agreement has been terminated in accordance with its terms, Centene or Health Net, as the case may be, will still be required to submit each of their merger-related proposals to a vote at their special meeting of stockholders. In addition, the other party generally has an opportunity to offer to modify the terms of the transactions contemplated by the merger agreement in response to any third-party alternative transaction proposal before the board of directors of the company that has received a third-party alternative transaction proposal may withdraw or qualify its recommendation with respect to the merger-related proposal.

In some circumstances, upon termination of the merger agreement, a party will be required to pay a termination fee of between $63 million and $402 million to the other party. See the sections entitled “Summary—No Solicitation” beginning on page 25, “The Merger Agreement—Termination; —Effect of Termination; —Termination Fees and Other Fees” beginning on page 158.

These provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring all or a significant portion of Centene or Health Net or pursuing an alternative transaction from considering or proposing such a transaction, even if it were prepared to pay consideration with a higher per share cash or market value than the per share cash or market value proposed to be received or realized in the merger. In particular, a termination fee, if applicable, may be substantial, and could result in a potential third-party acquiror or merger partner proposing to pay a lower price to the Centene stockholders or Health Net stockholders than it might otherwise have proposed to pay absent such a fee.

If the merger agreement is terminated and either Centene or Health Net determines to seek another business combination, Centene or Health Net, as applicable, may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.

The merger is subject to the expiration or termination of applicable waiting periods and the receipt of approvals, consents or clearances from regulatory authorities that may impose conditions that could have an adverse effect on Health Net, Centene or the combined company or, if not obtained, could prevent completion of the merger.

Before the merger may be completed, any waiting period (or extension thereof) applicable to the merger must have expired or been terminated, and any approvals, consents or clearances required in connection with the merger must have been obtained, in each case, under applicable law, including pursuant to the insurance laws and, in some instances, state health care laws. In deciding whether to grant the required regulatory approval, consent or clearance, the relevant governmental entities will consider the effect of the merger on competition

 

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within their relevant jurisdiction. The terms and conditions of the approvals, consents and clearances that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business. Under the merger agreement, Centene and Health Net have agreed to use their reasonable best efforts to obtain such approvals, consents and clearances and therefore may be required to comply with conditions or limitations imposed by governmental authorities, except that neither party may be required to agree to any term, limitation, condition, restriction or requirement that, individually or in the aggregate, would have or would reasonably be expected to have a material and adverse effect on the financial condition, business, revenue or EBITDA of Centene or Health Net, in each case, as currently conducted, or a requirement that would or would reasonably be expected to restrict or prohibit any lines or types of business in which Centene or Health Net shall be permitted to engage and would have or would reasonably be expected to have a material and adverse effect on Centene or Health Net.

In addition, regulators may impose conditions, terms, obligations or restrictions in connection with their approval of or consent to the merger, and such conditions, terms, obligations or restrictions may delay completion of the merger or impose additional material costs on or materially limit the revenues of the combined company following the completion of the merger. There can be no assurance that regulators will choose not to impose such conditions, terms, obligations or restrictions, and, if imposed, such conditions, terms, obligations or restrictions may delay or lead to the abandonment of the merger. For a more detailed description of the regulatory review process, see the section entitled “The Merger—Regulatory Approvals Required for the Merger” beginning on page 122.

The exchange ratio is fixed and will not be adjusted in the event of any change in either Centene’s or Health Net’s stock price. As a result, the merger consideration payable to Health Net’s stockholders may be subject to change if Centene’s stock price fluctuates.

Upon completion of the merger, each share of Health Net common stock will be converted into the right to receive $28.25 in cash and 0.622 of a validly issued, fully paid and non-assessable share of Centene common stock. This exchange ratio will not be adjusted for changes in the market price of either Centene common stock or Health Net common stock between the date the merger agreement was signed and completion of the merger. Due to the fixed exchange ratio, fluctuations in the price of Centene common stock will drive corresponding changes in the value of the merger consideration payable to each Health Net stockholder. As a result, changes in the price of Centene common stock prior to the completion of the merger will affect the value of Centene common stock that Health Net common stockholders will receive on the closing date.

The price of Centene common stock has fluctuated during the period between the date the merger agreement was executed and the date of this joint proxy statement/prospectus, and may continue to change through the date of each of Centene and Health Net’s stockholder meetings and the date the merger is completed. For example, based on the range of closing prices of Centene common stock during the period from July 1, 2015, the last full trading day before the public announcement of the merger, through September 18, 2015, the latest practicable trading date before the date of this joint proxy statement/prospectus, the exchange ratio represented a value of the stock portion of the merger consideration ranging from a high of $51.63 to a low of $35.81 for each share of Health Net common stock. The actual market value of the Centene common stock received by holders of Health Net common stockholders upon completion of the merger may be outside this range.

These variations could result from changes in the business, operations or prospects of Centene or Health Net prior to or following the completion of the merger, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of Centene or Health Net. At the time of the special stockholders meetings, Health Net stockholders will not know with certainty the value of the shares of Centene common stock that they will receive upon completion of the merger.

 

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Members of the management and board of directors of Health Net and Centene have interests in the merger that are different from, or in addition to, those of other stockholders.

In considering whether to approve and adopt the transactions contemplated by the merger agreement, Health Net and Centene stockholders should recognize that members of management and the Health Net and Centene Board have interests in the merger that differ from, or are in addition to, their interests as stockholders of Health Net or Centene.

The executive officers and directors of Health Net have arrangements with Health Net that provide for severance, accelerated vesting of certain rights and other benefits upon completion of the merger and/or if their employment or service is terminated under certain circumstances following the completion of the merger. Executive officers and directors of Health Net also have rights to indemnification, advancement of expenses and directors’ and officers’ liability insurance that will survive the completion of the merger. One independent director to be designated by the Health Net Board from those directors serving on the Health Net Board as of July 2, 2015, who qualifies as an “independent” director as defined by Section 303A.02 of the NYSE Listed Company Manual and is reasonably acceptable to the Nominating and Corporate Governance Committee of Centene, will be appointed to the Centene Board as of immediately following the closing. The Health Net Board was aware of these interests and considered them, among other matters, in approving the merger agreement and making its recommendation that the Health Net stockholders vote “FOR” the Merger proposal, the Merger-Related Compensation proposal and the Health Net Adjournment proposal.

With respect to Centene, these interests include that all nine members of the Centene Board, including Mr. Neidorff, will remain on the Centene Board, and Mr. Neidorff, the Chairman of the Centene Board and Centene’s President and Chief Executive Officer, will remain as the Chairman of the Centene Board and Centene’s President and Chief Executive Officer. The executive officers of Centene will remain the executive officers of the combined company. The Centene Board was aware of these interests and considered them, among other matters, in approving the merger agreement and making its recommendation that the Centene stockholders vote “FOR” the Share Issuance proposal, the Centene Adjournment proposal and the Charter Amendment proposal.

These interests are further described in “The Merger—Interests of Directors and Executive Officers of Centene in the Merger” beginning on page 107 and “The Merger—Interests of Directors and Executive Officers of Health Net in the Merger.”

If the mergers do not qualify as a reorganization under Section 368(a) of the Code, the stockholders of Health Net may be required to pay substantial U.S. federal income taxes.

Centene and Health Net intend for the mergers, taken together, to be treated as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. However, it is not a condition to Health Net’s obligation or Centene’s obligation to complete the transactions that the mergers, taken together, be treated as a “reorganization.” If the subsequent merger is not completed or if the IRS or a court determines that the mergers should not be treated as a “reorganization” within the meaning of Section 368(a) of the Code, in either event, a holder of Health Net common stock would recognize taxable gain or loss upon the exchange of Health Net common stock for Centene common stock pursuant to the merger. See “The Merger—U.S. Federal Income Tax Consequences” beginning on page 130.

Each party is subject to business uncertainties and contractual restrictions while the proposed merger is pending, which could adversely affect each party’s business and operations.

In connection with the pendency of the merger, it is possible that some customers, suppliers and other persons with whom Centene or Health Net has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with Centene or Health

 

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Net, as the case may be, as a result of the merger, which could negatively affect Centene’s or Health Net’s respective revenues, earnings and cash flows, as well as the market price of Centene common stock or Health Net common stock, regardless of whether the merger is completed.

Under the terms of the merger agreement, each of Centene or Health Net is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could adversely affect each party’s businesses and operations prior to the completion of the merger.

Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the merger.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees which could adversely affect the future business and operations of the combined company.

Centene and Health Net are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. The combined company’s success after the completion of the merger will depend in part upon the ability of Centene and Health Net to retain key management personnel and other key employees. Prior to completion of the merger, current and prospective employees of Centene and Health Net may experience uncertainty about their roles within the combined company following the completion of the merger, which may have an adverse effect on the ability of each of Centene and Health Net to attract or retain key management and other key personnel. In addition, no assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of Centene and Health Net to the same extent that Centene and Health Net have previously been able to attract or retain their own employees.

Litigation filed against Health Net, Centene, the Merger Subs and the members of the Health Net Board could prevent or delay the consummation of the merger or result in the payment of damages following completion of the merger.

In connection with the merger, two purported Health Net stockholders have filed two putative stockholder class action lawsuits against Health Net, Centene, the Merger Subs and the members of the Health Net Board. The lawsuits, as amended and consolidated, allege, among other things, that the merger consideration is inadequate, that the process culminating in the merger was flawed, that the directors of Health Net breached their fiduciary duties in connection with the merger, and that Centene and the Merger Subs aided and abetted the breaches of fiduciary duty. The amended complaint also alleges that the Form S-4 Registration Statement filed on August 19, 2015 contains material misstatements and omits material information. The consolidated lawsuit seeks to enjoin the merger and other relief. The outcome of any such litigation is uncertain. If a dismissal is not granted or a settlement is not reached, the lawsuits could prevent or delay completion of the merger and result in substantial costs to Centene and Health Net, including any costs associated with indemnification. Additional lawsuits may be filed against Centene, Health Net or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is consummated may adversely affect the combined company’s business, financial condition, results of operations and cash flows. See “The Merger—Litigation Related to the Merger” beginning on page 129 for more information about the lawsuits that have been filed related to the merger.

 

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The unaudited pro forma condensed combined financial information in this joint proxy statement/prospectus is presented for illustrative purposes only and may not be reflective of the operating results and financial condition of the combined company following completion of the merger.

The unaudited pro forma condensed combined financial information in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the merger been completed on the dates indicated. Further, the combined company’s actual results and financial position after the merger may differ materially and adversely from the unaudited pro forma condensed combined financial data that is included in this joint proxy statement/prospectus. The unaudited pro forma condensed combined financial information has been prepared with the expectation, as of the date of this joint proxy statement/prospectus, that Centene will be identified as the acquirer under GAAP and reflects adjustments based upon preliminary estimates of the fair value of assets to be acquired and liabilities to be assumed. The final acquisition accounting will be based upon the actual purchase price and the fair value of the assets and liabilities of the party that is determined to be the acquiree under GAAP as of the date of the completion of the merger. In addition, subsequent to the closing date, there will be further refinements of the acquisition accounting as additional information becomes available. Accordingly, the final acquisition accounting may differ materially from the pro forma condensed combined financial information reflected in this document. See “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 188 for more information.

Completion of the merger may trigger change in control or other provisions in certain agreements to which Health Net is a party, which may have an adverse impact on the combined company’s business and results of operations.

The completion of the merger may trigger change in control and other provisions in certain agreements to which Health Net is a party. If Centene and Health Net are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if Centene and Health Net are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Health Net or the combined company. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations.

The Centene common shares to be received by Health Net stockholders upon completion of the merger will have different rights from shares of Health Net common stock.

Upon completion of the merger, Health Net stockholders will no longer be stockholders of Health Net but will instead become stockholders of Centene and their rights as Centene stockholders will be governed by the terms of Centene’s certificate of incorporation, as amended, and Centene’s by-laws. The terms of Centene’s certificate of incorporation, as amended, and by-laws are in some respects materially different than the terms of Health Net’s certificate of incorporation and bylaws, which currently govern the rights of Health Net stockholders. See “Comparison of Rights of Stockholders of Centene and Health Net” beginning on page 207 of this joint proxy statement/prospectus for a discussion of the different rights associated with shares of Health Net common stock and shares of Centene common stock.

Risks Relating to the Combined Company after Completion of the Merger

The combined company may be unable to successfully integrate the businesses of Centene and Health Net and realize the anticipated benefits of the merger.

The success of the merger will depend, in part, on the combined company’s ability to successfully combine the businesses of Centene and Health Net, which currently operate as independent public companies, and realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from the combination. If the combined company is unable to achieve these objectives within the anticipated time frame, or

 

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at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected and the value of its common stock may be harmed. Additionally, rating agencies may take negative actions against the combined company.

The merger involves the integration of Health Net’s business with Centene’s existing business, which is a complex, costly and time-consuming process. Centene and Health Net have not previously completed a transaction comparable in size or scope to the proposed merger. The integration of the two companies may result in material challenges, including, without limitation:

 

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the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the merger;

 

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managing a larger combined company;

 

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maintaining employee morale and retaining key management and other employees;

 

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the possibility of faulty assumptions underlying expectations regarding the integration process;

 

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retaining existing business and operational relationships and attracting new business and operational relationships;

 

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consolidating corporate and administrative infrastructures and eliminating duplicative operations;

 

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coordinating geographically separate organizations;

 

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unanticipated issues in integrating information technology, communications and other systems;

 

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unanticipated changes in federal or state laws or regulations, including the ACA and the Health Care Education Affordability Reconciliation Act and any regulations enacted thereunder; and

 

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unforeseen expenses or delays associated with the merger.

Many of these factors will be outside of the combined company’s control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations and cash flows.

Centene and Health Net are currently permitted to conduct only limited planning for the integration of the two companies following the merger and have not yet determined the exact nature of how the businesses and operations of the two companies will be combined after the merger. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized.

Centene stockholders and Health Net stockholders will have a reduced ownership and voting interest after the merger and will exercise less influence over the policies of the combined company than they now have on the policies of Centene and Health Net, respectively.

Centene stockholders presently have the right to vote in the election of the Centene Board and on other matters affecting Centene. Health Net stockholders presently have the right to vote in the election of the Health Net Board and on other matters affecting Health Net. Immediately after the merger is completed, it is expected that current Centene stockholders will own approximately 71% of the combined company’s common stock outstanding and current Health Net stockholders will own approximately 29% of the combined company’s common stock outstanding, respectively.

As a result, current Centene stockholders and current Health Net stockholders will have less influence on the policies of the combined company than they now have on the policies of Centene and Health Net, respectively.

 

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The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following the completion of the merger.

Following the completion of the merger, the size of the combined company’s business will be significantly larger than the current size of either Centene’s or Health Net’s respective businesses. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two discrete companies, but also the increased scale and scope of the combined business with its associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the merger.

The combined company is expected to incur substantial expenses related to the completion of the merger and the integration of Centene and Health Net.

The combined company is expected to incur substantial expenses in connection with the completion of the merger and the integration of Centene and Health Net. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. In addition, the businesses of Centene and Health Net will continue to maintain a presence in St. Louis, Missouri and Woodland Hills, California, respectively. The substantial majority of these costs will be non-recurring expenses related to the merger (including financing of the merger), facilities and systems consolidation costs. The combined company may incur additional costs to maintain employee morale and to retain key employees. Centene and Health Net will also incur transaction fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. Additionally, as a result of the merger, rating agencies may take negative actions with regard to the combined company’s credit ratings, which may increase the combined company’s costs in connection with the financing of the merger. These incremental transaction and merger-related costs may exceed the savings the combined company expects to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term and in the event there are material unanticipated costs.

The combined company will be significantly more leveraged than Centene is currently.

Upon completion of the merger, the combined company expects to incur approximately $2,382 million in additional indebtedness. The combined company will have consolidated indebtedness of approximately $4,136 million, which is greater than the current indebtedness of Centene prior to the merger. The increased indebtedness and higher debt-to-equity ratio of the combined company in comparison to that of Centene on a historical basis will have the effect, among other things, of reducing the flexibility of Centene to respond to changing business and economic conditions and increasing borrowing costs. For more information on the financial impact of the combined company’s indebtedness, see “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 188.

The financing arrangements that the combined company will enter into in connection with the merger may, under certain circumstances, contain restrictions and limitations that could significantly impact the combined company’s ability to operate its business.

Centene is incurring significant new indebtedness in connection with the merger. Centene and Health Net expect that the agreements governing the indebtedness that the combined company will incur in connection with the merger will contain covenants that, among other things, may, under certain circumstances, place limitations on the dollar amounts paid or other actions relating to:

 

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payments in respect of, or redemptions or acquisitions of, debt or equity issued by the combined company or its subsidiaries, including the payment of dividends on Centene common stock;

 

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incurring additional indebtedness;

 

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•

incurring guarantee obligations;

 

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paying dividends;

 

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creating liens on assets;

 

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entering into sale and leaseback transactions;

 

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making investments, loans or advances;

 

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entering into hedging transactions;

 

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engaging in mergers, consolidations or sales of all or substantially all of their respective assets; and

 

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engaging in certain transactions with affiliates.

In addition, the combined company will be required to maintain a minimum amount of excess availability as set forth in these agreements.

The combined company’s ability to maintain minimum excess availability in future periods will depend on its ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond the combined company’s control. The ability to comply with this covenant in future periods will also depend on the combined company’s ability to successfully implement its overall business strategy and realize contemplated merger synergies.

Various risks, uncertainties and events beyond the combined company’s control could affect its ability to comply with the covenants contained in its debt agreements. Failure to comply with any of the covenants in its existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, the combined company might not have sufficient funds or other resources to satisfy all of its obligations. In addition, the limitations imposed by financing agreements on the combined company’s ability to incur additional debt and to take other actions might significantly impair its ability to obtain other financing.

Centene has obtained commitment letters from potential lenders. However, the definitive loan documents have not been finalized.

The market price of the combined company’s common stock may be affected by factors different from those affecting the price of Centene or Health Net common stock.

Upon completion of the merger, holders of Centene common stock and Health Net common stock will be holders of common stock of Centene. As the businesses of Centene and Health Net are different, the results of operations as well as the price of the combined company’s common stock may in the future be affected by factors different from those factors affecting Centene and Health Net as independent stand-alone companies. The combined company will face additional risks and uncertainties that Centene or Health Net may currently not be exposed to as independent companies.

The market price of Centene’s common stock may decline as a result of the merger.

The market price of Centene common stock may decline as a result of the merger if, among other things, the combined company is unable to achieve the expected growth in earnings, or if the operational cost savings estimates in connection with the integration of Centene’s and Health Net’s businesses are not realized, or if the transaction costs related to the merger are greater than expected, or if the financing related to the transaction is on unfavorable terms. The market price also may decline if the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the

 

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merger on the combined company’s financial position, results of operations or cash flows is not consistent with the expectations of financial or industry analysts.

Other Risk Factors of Centene and Health Net

Centene’s and Health Net’s businesses are and will be subject to the risks described above. In addition, Centene and Health Net are, and will continue to be subject to the risks described in Centene’s and Health Net’s respective Annual Reports on Form 10-K for the fiscal year ended December 31, 2014 as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 220 for the location of information incorporated by reference into this joint proxy statement/prospectus.

 

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THE MERGER

The following is a discussion of the transaction and the material terms of the merger agreement between Centene and Health Net. You are urged to read carefully the merger agreement in its entirety, a copy of which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein.

Background of the Merger

The Health Net Board regularly reviews and assesses Health Net’s performance, risks, opportunities and strategy at board meetings. Additionally, the Health Net Board and management team regularly review and evaluate the possibility of pursuing various strategic alternatives and relationships as part of Health Net’s ongoing efforts to strengthen its businesses and maximize value for its stockholders, taking into account economic, regulatory, competitive and other conditions.

In September 2013, the Health Net Board directed Health Net’s management to engage financial advisors to assist with the identification of potential strategic partners and the consideration of a potential business combination. Health Net engaged financial advisors, including J.P. Morgan in connection with the foregoing strategic review process.

As part of this strategic process, Health Net had preliminary discussions with several entities and engaged in negotiations with two potential strategic partners (“Strategic Party A”) and (“Strategic Party B”). In early 2014, Strategic Party A offered to acquire Health Net. Despite several months of negotiations and price rounds, the highest price offered by Strategic Party A did not constitute a significant premium over the then current trading price of Health Net common stock. Strategic Party B submitted a preliminary non-binding indication of interest, but declined to submit an offer to acquire Health Net. The Health Net Board was actively involved in monitoring and participating in decisions regarding the negotiation process. Negotiations with Strategic Party A continued into mid-2014, focused primarily on pricing terms and the ability to procure the necessary antitrust clearance and state regulatory approvals required to complete a transaction. In July 2014, Strategic Party A decided to end discussions regarding a possible transaction with Health Net, noting significant concerns with state regulatory approval requirements. At this juncture, the Health Net Board directed management to cease active efforts towards a possible business combination.

The Health Net Board also directed management to renew its efforts to negotiate a possible outsourcing transaction with Cognizant Healthcare Services, LLC, which we refer to as “Cognizant”. On November 2, 2014, Health Net entered into an agreement with Cognizant, which was amended and restated on November 21, 2014. We refer to such agreement, as amended and restated, as the “Cognizant Agreement”. The Cognizant Agreement provided Health Net with the right to terminate the agreement until no later than ten (10) days after all regulatory approvals necessary to implement the Cognizant Agreement were obtained, which we refer to as a Pre-Commencement Termination Right. Health Net had the right to terminate the Cognizant Agreement after the Pre-Commencement Termination Right expired, but with a significant financial penalty.

In November 2014, Mr. Neidorff contacted Mr. Gellert to set up a meeting to discuss the business environment and their respective businesses. On or about November 25, 2014, Messrs. Neidorff and Gellert met in Los Angeles and spoke generally about market conditions and the complementary aspects of their respective businesses. They agreed to meet again to discuss whether there was a way for the two companies to work together. Mr. Gellert informed the members of the Health Net Board of these discussions and the directors agreed that Mr. Gellert should continue to communicate with Mr. Neidorff about potential avenues for the two companies to work together.

On March 2, 2015, Mr. Neidorff and other representatives of Centene met with Mr. Gellert and other representatives of Health Net in St. Louis. The parties discussed the future of their respective businesses and the managed care industry and the expected impact of the ACA on each company as well as their respective

 

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philosophical business approaches. The parties did not discuss a potential transaction at this meeting. Mr. Neidorff concluded the meeting by stating that he wanted to maintain an open dialogue. Mr. Gellert and Mr. Neidorff informed their respective boards of directors of the content of these discussions.

In April 2015, Mr. Gellert was invited to meet with another potential strategic partner (“Strategic Party C” and, together with Strategic Party A and Strategic Party B, the “Strategic Parties”). On April 24, 2015, Mr. Gellert met with executives of Strategic Party C and discussed potential opportunities, including whether there were any viable structures for a potential business combination between the two parties. The parties identified significant hurdles to closing a potential transaction, including regulatory and antitrust approvals. Mr. Gellert informed the Health Net Board of these discussions.

Between the meeting in St. Louis on March 2, 2015 and the end of May, 2015, Mr. Neidorff contacted Mr. Gellert by telephone several times to discuss, among other things, market conditions and their businesses generally. On or about May 28, 2015, Mr. Neidorff’s assistant contacted Mr. Gellert’s assistant to schedule a meeting between the parties at a time when Mr. Neidorff intended to be on the west coast in early June 2015.

On June 8, 2015, Mr. Neidorff and other representatives of Centene, including representatives of Evercore and Allen & Company, met with Mr. Gellert and representatives of J.P. Morgan in Long Beach, California. At that meeting, Mr. Neidorff informed Mr. Gellert that Centene was interested in pursuing a potential business combination with Health Net. The parties discussed potential opportunities with respect to a combined entity as well as potential synergies. Mr. Gellert informed the Health Net Board of these discussions and scheduled a telephonic board meeting. Mr. Neidorff informed the Centene Board of the meeting.

On June 13, 2015, the Health Net Board met telephonically. At this meeting, Mr. Gellert provided background on Centene’s business and details of his June 8 conversation with Mr. Neidorff. He informed the Health Net Board that Centene expressed interest in beginning due diligence during the week of June 15 and that Centene was interested in evaluating a potential transaction on an expedited basis in light of the upcoming expected implementation of the Cognizant Agreement and public speculation regarding consolidation activity in the health insurance industry. The Health Net Board authorized commencement of discussions and due diligence and agreed to discuss a potential transaction in greater detail on a call early during the week of June 15.

On Monday, June 15, 2015, Health Net and Centene exchanged parallel drafts of non-disclosure agreements. Between June 15 and June 16, 2015, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), as counsel to Centene, and Morgan Lewis, as counsel to Health Net, negotiated the terms of the non-disclosure agreements. On Tuesday, June 16, 2015, the parties executed such agreements and commenced due diligence.

On Tuesday, June 16, 2015, the Health Net Board met telephonically. Mr. Gellert briefed the Health Net Board on recent developments in the health insurance industry, including announcements of, and public speculation regarding, acquisition activity in the sector. He noted that Centene had engaged McKinsey & Company to assist with identifying synergies, Evercore and Allen & Company as financial advisors, and Skadden as legal counsel. Mr. Gellert also informed the Health Net Board that Centene had indicated that it would consider proposing a business combination involving a significant stock component at a premium to Health Net’s then current stock price consistent with market practice, which Centene described as between 15% to 24%, depending on its diligence evaluation. Mr. Gellert advised the Health Net Board that, in his view, Centene’s investment of time and resources indicated its interest was genuine and that the potential value to Health Net stockholders justified an investment of Health Net’s resources and engagement of external advisors, especially in light of the Health Net Board’s prior interest in pursuing a strategic transaction and the potential long -term stand-alone challenges, such as, among others, the difficulty of expanding in other markets, previously identified by the Health Net Board. The Health Net Board agreed and approved the engagement of J.P. Morgan, as well as Morgan Lewis as legal counsel for the transaction, Morris, Nichols, Arsht & Tunnell LLP as Delaware legal counsel for the transaction, and Crowell & Moring LLP and Sidley Austin LLP as special legal counsel for the transaction.

 

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Representatives of J.P. Morgan advised the Health Net Board that, in light of Centene’s current market capitalization, they expected that any proposal would have a significant stock component. Representatives of J.P. Morgan also discussed the financing that Centene would likely have to arrange to consummate the transaction. Representatives of J.P. Morgan also advised that Centene’s interest appeared to be credible and bona fide. Representatives of J.P. Morgan also indicated, based on conversations with representatives of Centene’s financial advisors, that Centene was eager to reach an agreement by the end of June, prior to the pending implementation of the Cognizant Agreement, which might preclude Centene’s desired combined company strategy.

Mr. Gellert further advised the Health Net Board of the proposed timing for a potential transaction, noting that Centene had stated that it would not pursue a business combination once Health Net had initiated the implementation of the Cognizant Agreement. The Health Net Board then discussed the possibility of a transaction with other potential strategic partners, including the Strategic Parties. However, in light of the current trend toward consolidation in the industry and the potential regulatory and antitrust concerns associated with many potential transaction partners, the Health Net Board concluded that other potential transaction partners were not viable candidates for a business combination. During this meeting, it was also observed that, with the extensive transaction activity in the health care industry, maintaining confidentiality of the potential transaction would be a priority.

The Health Net Board further discussed Centene’s likely strategy in managing the combined business, including potential synergies, as well as the potential impact of the upcoming Supreme Court decision in King vs. Burwell. Mr. Gellert noted that, like Health Net, Centene was a low cost leader with a clear strategy and that Centene management would likely want to retain many of Health Net’s employees, who have executed that same strategy in California. He explained his view that Centene’s and Health Net’s complementary strategies, together with the combination of resources, provided a compelling business rationale for the potential transaction. The Health Net Board agreed that discussions should move forward for the potential transaction.

On Tuesday, June 16, 2015, the Centene Board met telephonically. Representatives of Skadden discussed various process considerations for the Centene Board in evaluating a possible transaction with Health Net and the directors’ duties under Delaware law regarding a potential transaction with Health Net.

Mr. Neidorff reviewed other strategic alternatives the Centene Board had considered in the past and could consider in the future. Mr. Neidorff discussed the strategic and financial rationale for a transaction with Health Net and reasons for believing a transaction with Health Net would be beneficial for Centene’s stockholders. Mr. Neidorff provided background on the discussions with Health Net regarding a potential transaction, including a summary of meetings and communications to date with Mr. Gellert.

Mr. Neidorff noted that in-person business diligence meetings had commenced at Health Net’s corporate headquarters that day, with Centene’s management and representatives from Centene’s financial advisors, Evercore and Allen & Company, and McKinsey in attendance. Mr. Neidorff also reviewed the analyses of potential synergies that had been conducted to date, with McKinsey’s assistance.

Evercore and Allen & Company then provided a business and financial overview of Health Net and an overview of the potential pro forma financial impact of the proposed transaction on Centene based on Wall Street research analysts’ consensus estimates for Health Net. Centene’s financial advisors also discussed preliminary views as to the potential market reaction to the proposed transaction.

From Tuesday, June 16, 2015 through Friday, June 19, 2015, representatives of Centene and various third-party advisors participated in due diligence meetings in Woodland Hills, California. Concurrently, Centene’s independent registered public accounting firm, KPMG, LLP (“KPMG”) reviewed Health Net’s audit work papers from its independent registered public accounting firm, Deloitte & Touche, LLP (“Deloitte”).

On Sunday, June 21, 2015, Morgan Lewis sent an initial draft of certain portions of the merger agreement, including Health Net’s representations and warranties, to Skadden.

 

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On Monday, June 22, 2015, the Health Net Board met telephonically. Management reported that, based upon conversations to date, there existed a reasonable basis to conclude that it was possible that the parties could reach agreement on an acceptable transaction. Management also noted Centene’s stated deadline of July 1, 2015 to execute the merger agreement in order to avoid potential leaks of the potential transaction and to address certain considerations relating to the Cognizant Agreement. The Health Net Board recognized that timing was a key driver for the deal process.

The Health Net Board discussed the Cognizant Agreement, including employee transition matters and penalties associated with a termination of the Cognizant Agreement. The Health Net Board concluded that it would be important to secure Cognizant’s agreement that Health Net could renew efforts to implement a version of the Cognizant Agreement if Health Net were unable to consummate the potential transaction with Centene.

Kathleen A. Waters, Health Net’s Senior Vice President, General Counsel and Secretary, updated the Health Net Board on the progress of each party’s due diligence, as well as “clean room” procedures agreed to by the parties to protect certain sensitive information.

Representatives of J.P. Morgan advised the Health Net Board regarding the financing that Centene would likely have to arrange to consummate the transaction and the fact that a significant portion of the merger consideration was expected to be in Centene common stock. Representatives of J.P. Morgan also presented materials previously provided to the Health Net Board in detail and answered questions from members of the Health Net Board who had reviewed the materials in advance of the meeting. Morgan Lewis advised on various financing, regulatory and stockholder vote matters, each of which was a contributing factor to the certainty of closing any business combination. The Health Net Board discussed that Centene would need to obtain stockholder approval of the issuance of shares of Centene common stock in the transaction. The Health Net Board discussed with the representatives of J.P. Morgan the considerations associated with the use of price collars in transactions involving a significant stock component, including the fact that most similar transactions do not contain price collars and the recognition that a price collar could be misconstrued as an indication that Health Net was not confident in the prospects of the combined company. The Health Net Board also discussed the various proposed termination fees and the context in which they would be payable by each party and determined to seek a meaningful termination fee by Centene to mitigate against any potential uncertainty, including failure to obtain the approval of Centene’s stockholders.

Ms. Waters and Morgan Lewis also reviewed the regulatory approvals required for a potential transaction, and compared the anticipated approval process for the potential transaction with Centene to the anticipated approval process in the previously considered transaction with Strategic Party A.

The Health Net Board directed management to continue pursuing a potential transaction, with a focus on deal certainty and price. Management was further directed to contact Cognizant at an appropriate time, and to proceed on diligence and negotiation with Centene of definitive agreements in light of Centene’s proposed transaction timing.

On Tuesday, June 23, 2015, the Centene Board met in person at Centene’s headquarters. During the meeting, the Centene Board discussed a number of aspects which it believed were relevant to the Board’s consideration of the potential transaction with Health Net including, among other things, an assessment of each company’s strengths in terms of culture, technology and relationships with state governments. The Centene Board also discussed Centene’s resources for undertaking a potential transaction with Health Net. During the course of the meeting, representatives of Skadden described certain considerations that the Centene Board should focus on in evaluating a potential transaction with Health Net, including the directors’ duties under Delaware law with regard to a potential transaction with Health Net.

Mr. Neidorff then updated the Centene Board on his discussions with Mr. Gellert and on discussions between Centene’s and Health Net’s respective financial advisors regarding a possible transaction. He also reviewed with the Centene Board his preliminary discussions with the chief executive officers of other

 

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companies regarding a potential transaction, as had been reviewed previously with the Centene Board. Mr. Neidorff noted that such discussions had concluded at a preliminary stage and were no longer continuing.

The Centene Board then reviewed the key tasks completed on the potential transaction with Health Net during the week ended June 21 and discussed the ongoing due diligence process and findings then to date regarding synergies and financial, operational and legal matters concerning different aspects of Health Net’s various businesses. The Centene Board then discussed the review conducted of Health Net’s projections, the work performed by McKinsey, and a detailed analysis of Health Net’s technology and IT and the current and pending contracts with Cognizant. The Centene Board further discussed, among other things, Health Net’s government contracts business, Health Net’s management and regional leadership, Health Net’s projections, regulatory considerations concerning a potential transaction, and the potential impact on Health Net’s business and operations of the pending decision of the U.S. Supreme Court in King v. Burwell regarding the ACA.

Centene’s financial advisors then discussed with the Centene Board a business and financial overview of Health Net and the potential pro forma financial impact of the proposed transaction on Centene based on Centene management’s preliminary synergy estimates and, in the case of Health Net, the adjusted Health Net case, as well as a preliminary overview of implied transaction metrics at various illustrative purchase prices. Centene’s financial advisors also discussed an overview of the proposed consideration, consisting of a mix of stock and cash, and potential financing plans for the proposed transaction.

Representatives of Skadden then reviewed the regulatory approvals required for a potential transaction and the terms of the draft merger agreement with the Centene Board.

On Tuesday, June 23, 2015, and Wednesday, June 24, 2015, Health Net participated in due diligence meetings in Centene’s corporate offices. During this period, Messrs. Neidorff and Gellert continued to discuss potential synergies of the transaction. Mr. Neidorff also expressed Centene’s interest in retaining key Health Net personnel, but no specific terms regarding such retention were discussed. Concurrently, Deloitte reviewed Centene’s audit work papers from KPMG.

On Tuesday, June 23, 2015, Centene’s financial advisors, at the direction of Centene, relayed to Health Net’s financial advisor Centene’s proposed mix of consideration, consisting of $28.25 in cash and shares of Centene common stock, at a fixed exchange ratio, valued in the aggregate, as of such date, at $73.00 per share (an approximately 13% premium over Health Net’s closing stock price on June 23, 2015). Following this discussion, representatives of J.P. Morgan and Mr. Gellert communicated to Centene’s financial advisors that the Health Net Board would likely view Centene’s proposed consideration as inadequate and would likely be unwilling to engage in further discussions at that valuation in the proposed timeframe contemplated by Centene for a potential transaction.

On Wednesday, June 24, 2015, Skadden distributed an initial draft of the merger agreement to Morgan Lewis.

The parties continued their due diligence with conference calls and the exchange of documents from Wednesday, June 24, 2015 through July 1, 2015.

Between June 24, 2015 and July 1, 2015, Centene’s and Health Net’s legal counsel negotiated certain provisions of the merger agreement, including, among others, representations and warranties, covenants relating to regulatory approvals and various termination provisions, as well as related ancillary agreements, such as voting agreements.

On Thursday, June 25, 2015, Centene’s financial advisors, at the direction of Centene, relayed to Health Net’s financial advisors Centene’s revised proposed mix of consideration, consisting of $28.25 in cash and shares of Centene common stock, at a fixed exchange ratio, valued in the aggregate, as of such date, at $75.50 per share (an approximately 16% premium over Health Net’s closing stock price on June 25, 2015).

 

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On Monday, June 29, 2015, the Health Net Board met in person in Los Angeles. Mr. Gellert provided the Health Net Board with an update on negotiations since the last meeting, including negotiations regarding price and contractual terms, as well as the progress of the due diligence process and timing considerations proposed by Centene and his view that the failure to meet the proposed timeframe would significantly diminish the chances of entering into a transaction with Centene.

Mr. Gellert explained that, while he did not believe that Health Net needed to effect a strategic transaction at that time, a business combination with Centene would be consistent with a number of the longer term strategic considerations previously discussed by the Health Net Board, many of which had been underlying Health Net’s strategic review process during the prior year. Mr. Gellert advised the Health Net Board of his view that the proposed business combination presented as few obstacles to completion as could be reasonably expected from a regulatory and antitrust perspective and that this transaction presented significant opportunities and appeared to be in the best interest of Health Net’s stockholders. He also noted that based on a recent discussion with the Chief Executive Officer of Strategic Party A, there appeared to be no viable path to overcome the regulatory issues that caused that prior strategic review process to conclude without completion of a transaction.

The Health Net Board then discussed options for approaching Cognizant and potential synergies associated with a business combination with Centene.

Management and representatives of J.P. Morgan also presented management’s forecasts of Health Net’s business on a stand-alone basis and a discussion was held regarding the associated potential upside and risks. Representatives of J.P. Morgan advised that the business combination with Centene appeared to represent, based on the information provided to J.P. Morgan by Centene and Health Net and publicly available financial information, an attractive alternative financially to the current stand-alone prospects. The Health Net Board concluded that, in light of the positive forecast on a stand-alone basis, which may be negatively impacted by entering into a strategic transaction that fails to close, and the potential loss of certain existing stand-alone strategic opportunities if Health Net pursued the Centene transaction, certainty of completion of the transaction remained a key focus.

The Health Net Board further discussed the regulatory and Centene stockholder approval risks that were discussed at the previous meeting.

Mr. Gellert expressed his view that the two companies were strategically aligned, that the proposed merger consideration would afford a good premium to Health Net stockholders and that the proposed transaction would provide a significant growth opportunity for the combined company. He advised that the business combination was expected to permit migration of Health Net’s model to Centene’s existing geographical footprint, a strategic goal which he believed would be difficult and expensive to achieve on a stand-alone basis.

Representatives of J.P. Morgan also discussed recent publicly announced transactions and public speculation regarding potential transactions in the sector and the potential impact on the proposed transaction with Centene. Although such recent acquisition activity could make Centene a potential acquisition target for a third-party, the Health Net Board discussed that any such alternative transactions could potentially be confronted with significant regulatory and antitrust obstacles. Representatives of J.P. Morgan also presented materials previously provided to the Health Net Board in detail and answered questions from members of the Health Net Board who had reviewed the materials in advance of the meeting.

The Health Net Board also discussed the potential tax consequences of the proposed business combination, and the potential combined company board composition and management, including the importance of retaining key Health Net personnel to the operations of the combined company. Messrs. Gellert and Health Net’s Chief Financial and Operating Officer, James Woys, advised the Health Net Board that, while discussions with Centene had not included specific employment terms, they were each willing to remain with the combined company for a transition period to help ensure a successful combination.

 

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Mr. Woys provided the Health Net Board with detailed information regarding Centene and its business, including the results of the financial diligence review performed by management and Deloitte. Management advised the Health Net Board that the diligence results were satisfactory, and management indicated it was comfortable with Centene’s estimates for fiscal 2015 and 2016.

Morgan Lewis discussed a memorandum previously provided to the Health Net Board with respect to its fiduciary duties in the context of the transaction process. In connection with these discussions, the Health Net Board noted that the merger agreement would provide for a post-signing market check and discussed the likelihood that any potential suitors for Health Net would surface during the first 45 days following the announcement of the execution of the merger agreement and that such suitors would likely not be deterred by the termination fee payable by Health Net to enter into an alternative transaction and that any such potential suitors would likely have sufficient cash on hand to consummate any such alternative transaction.

The Health Net Board discussed the proposed timing of the transaction. Mr. Gellert noted that, in his belief, the Health Net Board and management had had sufficient time to understand Centene’s business and its projections for fiscal years 2015 and 2016. The Health Net Board agreed.

The Health Net Board further discussed material open items in the draft merger agreement, including provisions relating to the Cognizant Agreement, potential termination fees and non-solicitation provisions. The Health Net Board agreed that management should continue to seek the best price possible, but that an agreement within the current range would be acceptable when combined with other key terms.

On Monday, June 29, 2015, Skadden distributed to Morgan Lewis initial drafts of the voting agreements and the exhibits to the merger agreement.

On Monday, June 29, 2015, Health Net, through representatives of J.P. Morgan, requested that Centene increase its offer to aggregate cash and stock consideration valued at $80.00 per share (an approximately 25% premium over Health Net’s closing stock price on June 29, 2015) and presented proposals on key open issues concerning (i) certain termination fees in the event of a failure to complete the transaction under various circumstances; (ii) protection in the event of an inability to obtain antitrust approvals; (iii) financing commitments; and (iv) the Cognizant Agreement. Health Net also requested three board seats on the Centene Board.

Later in the day on Monday, June 29, 2015, Centene responded through its financial advisors, at Centene’s request, with an offer of aggregate cash and stock consideration valued, as of such date, at $78.25 per share (an approximately 23% premium over Health Net’s closing stock price on June 29, 2015) and one board seat on the Centene Board. In addition, Centene’s financial advisors discussed generally with Health Net’s financial advisor other key open issues. At Centene’s request, the financial advisors also discussed Centene’s contemplated financing for the transaction and confirmed, on Centene’s behalf, that there would be no financing contingency and that debt commitment letters would be delivered by Centene at the time of the execution of the merger agreement.

On Tuesday, June 30, 2015, the Health Net Board met twice telephonically, the first time in the morning. The Health Net Board discussed possible deal protections in the event the transaction were to be terminated as a result of the failure to obtain antitrust or other regulatory approvals.

Mr. Woys and Ms. Waters reported to the Health Net Board on their discussions with Cognizant and explained that Health Net was working towards an agreement that would extend the Pre-Commencement Termination Right until after the close of a potential transaction with Centene in consideration for extending other business relationships with Cognizant and potentially implementing select portions of the Cognizant Agreement.

Morgan Lewis reported to the Health Net Board on the negotiations with Centene on material terms of the merger agreement. They advised that the parties had reached tentative agreement on the termination fees payable

 

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by each of Centene and Health Net in certain circumstances, including that, in order to facilitate a post-signing market check, a lower termination fee would be payable by Health Net if Health Net were to terminate the transaction to enter into another transaction during the first 45 days post-signing. They also advised that the parties agreed that each company’s chief executive officer would enter into a voting agreement and explained that the voting agreement with Mr. Neidorff would likely mitigate the risk that Centene’s stockholders would not approve the Share Issuance proposal. Morgan Lewis also reported that negotiations were continuing with respect to certain antitrust and regulatory provisions.

After the board meeting, Health Net, through its financial advisors, requested that Centene offer aggregate cash and stock consideration valued at $79.00 per share (an approximately 23% premium over Health Net’s closing stock price on June 30, 2015). In addition, Health Net requested (i) two board seats; (ii) an additional day to consider the transaction such that the execution of a definitive agreement would occur on July 2, 2015; and (iii) additional protection with respect to antitrust and other regulatory approval requirements.

Later on Tuesday, June 30, 2015, Morgan Lewis distributed a revised draft of the merger agreement and comments to related exhibits. Also later that day, Centene, through its financial advisors, responded with a proposed aggregate price of $78.45 per share (an approximately 22% premium over Health Net’s closing stock price on June 30, 2015) and one seat on the Centene Board, and agreed to extend the negotiations by an additional day. The parties continued to negotiate the termination provisions for antitrust and other regulatory reasons.

In the evening of June 30, 2015, the Health Net Board reconvened. Mr. Gellert provided the Health Net Board with an update on the status of negotiations with Centene. Members of the Health Net Board discussed expected synergies, the need for existing management to remain engaged through a transition period, employee retention concerns and possible antitrust considerations. Mr. Gellert and Morgan Lewis advised the Health Net Board that Centene had agreed to extend the timing for execution of the merger agreement from July 1 to July 2, but would be unlikely to agree to the same transaction terms beyond such date.

The Health Net Board discussed the overall process and noted its prior discussions regarding the need to consider strategic alternatives in the near term and further noted the difficulty of pursuing other acceptable alternatives without taking on greater regulatory and antitrust risk. The Health Net Board concluded that, given the potential desire to engage in a strategic transaction in the near term, as well as the state of the market, if acceptable terms could be reached, including with respect to regulatory and antitrust matters, it would be in the best interests of Health Net’s stockholders for this opportunity to be presented for their approval.

On Tuesday, June 30, 2015, the Centene Board had an in-person meeting in St. Louis, Missouri. During the course of the meeting, representatives of Skadden reviewed various process considerations for the Centene Board in evaluating a possible transaction with Health Net and reviewed various federal antitrust and state regulatory considerations.

Mr. Neidorff provided an update on the potential transaction with Health Net and discussions with Health Net, including a summary of meetings and communications with Mr. Gellert and other discussions between the two companies and their respective representatives. In addition, Mr. Neidorff and representatives of Skadden discussed the status of negotiations with Health Net on certain material terms of the potential transaction, including with respect to Centene’s obligations to obtain requisite regulatory approvals, the circumstances and amount of potential termination fees and the status of the contemplated financing plans related to the potential transaction. The Centene Board also reviewed the strategic rationale for the potential transaction.

Members of Centene’s management then discussed strategic considerations in proceeding with the potential transaction and reviewed the status of Centene’s due diligence review. Centene’s management further discussed PricewaterhouseCoopers’ review of Health Net’s public financial statements, tax papers and quality of earnings analysis, as well as IT and HR related matters. The Centene Board and Centene’s management, together with Centene’s advisors, continued to discuss potential synergies arising from the potential transaction and the likelihood of Centene achieving such synergies.

 

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The Centene Board then reviewed the terms of the contemplated financing for the potential transaction and the terms of the current draft of Centene’s commitment letter.

Mr. Neidorff noted that a request had been made by Health Net to add current members of the Health Net Board to the Centene Board following completion of a potential transaction with Health Net and that Centene had proposed one board seat to Health Net as part of the negotiations. The directors discussed the possibility of expanding the existing Centene Board. Following this discussion, representatives of Skadden reviewed with the Centene Board the fiduciary duties of the directors under Delaware law.

Representatives of Skadden then reviewed written materials describing the merger agreement. Among other things, Skadden discussed the potential tax-free treatment of the equity portion of the consideration payable to Health Net stockholders; the fact that Health Net stockholders would be entitled to appraisal rights in connection with the potential transaction; the contemplated treatment of existing Health Net equity awards; the conditions to closing; the nature of and obligations regarding financing; deal protection provisions, including, among others, limitations included in the merger agreement on the ability (subject to certain exceptions) of each of Centene and Health Net to solicit competing acquisition proposals or change its recommendation to their respective stockholders with respect to the potential transaction, the circumstances under which the merger agreement may be terminated by either party and the related termination fee amounts; and the obligations of each party to obtain required regulatory approvals; and the proposed voting agreements from the chief executive officer of each party.

Centene’s financial advisors then reviewed with the Centene Board financial aspects of the potential transaction, including, without limitation, a summary of financial terms of the potential transaction and implied equity and enterprise values for Health Net based on the proposed purchase price, as well as implied purchase price multiples and premiums. During the course of these discussions, Centene’s financial advisors also summarized Centene’s and Health Net’s historical relative stock price performance, provided an overview of selected companies and selected precedent transactions in the managed care industry, implied premiums paid in selected transactions and the discounted cash flows of Health Net and Centene based on the adjusted Health Net case and the Centene management forecast, respectively. The Centene Board additionally discussed with Centene’s management and its financial advisors potential synergies related to the potential transaction. After further discussion, the Centene Board instructed Centene’s management to continue negotiations of the proposed price and other terms of a transaction with Health Net.

On Wednesday, July 1, 2015, the Health Net Board met telephonically two times.

The first meeting occurred in the morning. Mr. Gellert reported that an agreement in principle with Cognizant had been reached consistent with the terms that were previously directed by the Health Net Board.

Morgan Lewis provided an update regarding the status of negotiations with Centene, including key transaction terms relating to termination, regulatory approval risk and non-solicitation, advising that such items had been resolved consistent with prior discussions with the Health Net Board.

The Health Net Board extensively discussed the antitrust review process and related provisions in the merger agreement. Morgan Lewis gave a detailed presentation on the timeline of antitrust review and discussed its view regarding antitrust concerns. Morgan Lewis then engaged in a detailed discussion of certain deal protections in the merger agreement. Mr. Gellert and Morgan Lewis also advised that other potential strategic partners for either party could likely present greater antitrust issues.

Mr. Gellert reported to the Health Net Board management’s high degree of confidence in the expected synergies that could be achieved by the combined company. He also indicated that Centene was interested in retaining key Health Net personnel, and confirmed his and Mr. Woys’ willingness to remain with the combined company for a transition period, although no specific or definitive employment terms had been discussed.

 

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The Health Net Board discussed Centene’s proposed timing for a deal announcement. Mr. Gellert and Morgan Lewis confirmed that Centene had made it clear that its offer would be withdrawn if the merger agreement was not executed prior to July 3, 2015, and the Health Net Board discussed Centene’s position in light of other rumored transactions in the market.

Representatives of J.P. Morgan expressed J.P. Morgan’s view that the premium represented by the implied value of the $78.45 per share merger consideration based on Centene’s closing stock price on July 1, 2015 over Health Net’s closing stock price on July 1, 2015 was slightly more than 20%, which was in line with other recent similar transactions. Representatives of J.P. Morgan also presented materials previously provided to the Health Net Board in detail and answered questions from members of the Health Net Board who had reviewed the materials in advance of the meeting.

Negotiations continued during the day of July 1, 2015, with the parties focused on open key terms. Centene, through its financial advisors, proposed a final mix of cash and stock consideration that, based on the trading price of Centene’s common stock as of such date, was valued in the aggregate at $78.57 per share (an approximately 21% premium over Health Net’s closing stock price on July 1, 2015).

During the evening of Wednesday, July 1, 2015, the Centene Board met via teleconference. At the invitation of Mr. Neidorff, representatives of Skadden provided a further review of the fiduciary duties of the Centene Board.

Representatives of Skadden then updated the Centene Board on negotiations with Health Net and reviewed the terms of the draft merger agreement, a copy of which previously had been provided to the Centene Board along with a summary of the material terms of the merger agreement, noting changes from the previously distributed merger agreement summary. Among other terms, they discussed the proposed price, termination fee payable by Centene in the event of a failure to receive antitrust clearance, deal protection measures, including the termination fees payable by or to Centene in the event of a competing transaction or a change in the recommendation of either the Centene Board or the Health Net Board with respect to the transactions contemplated by the merger agreement, Health Net’s request for the designation of a director to the Centene Board and the retention plan for Health Net employees, and certain other deal-related items. In addition, representatives of Skadden reviewed the financing commitment terms set forth in a draft commitment letter with Wells Fargo previously provided to the Centene Board and responded to questions.

Representatives of Evercore then reviewed Evercore’s financial analysis presented at the meeting on the previous day and described Evercore’s internal procedures for authorizing the fairness opinion and discussed in detail the provisions of, and bases for, the opinion. Evercore then reviewed with the Centene Board its financial analyses of the merger consideration and rendered an oral opinion, which was confirmed by delivery of a written opinion dated July 1, 2015, to the Centene Board to the effect that, as of that date and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in the opinion, the merger consideration payable by Centene pursuant to the merger agreement was fair, from a financial point of view, to Centene.

Also at this meeting, Allen & Company reviewed with the Centene Board its financial analysis of the merger consideration and rendered an oral opinion, which was confirmed by delivery of a written opinion dated July 1, 2015, to the Centene Board to the effect that, as of that date and based on and subject to the matters described in the opinion, the merger consideration payable by Centene pursuant to the merger agreement was fair, from a financial point of view, to Centene.

The Centene Board and its advisors engaged in an extended discussion of the transaction with Health Net and the merger agreement, considering a number of factors, including the comparative likelihood of consummation of the potential transaction, the agreement in principle between Cognizant and Health Net regarding revised terms of the Cognizant Agreement, the opportunities presented by the potential transaction, the recent and historical market prices for Health Net common stock and Centene common stock and the fact that the stock portion of the merger consideration would be subject to a fixed exchange ratio, the Centene Board’s belief

 

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that the potential transaction presented significant synergy opportunities and the current environment in the managed healthcare industry. A lengthy discussion followed regarding the merger, the merger agreement, and the transactions contemplated thereby, including the proposed financing of the potential transaction. The Centene Board then reviewed the resolutions authorizing the execution of the merger agreement. After carefully considering the merger agreement and the resolutions, it was the consensus of the Centene Board that the merger was in the best interests of Centene’s stockholders and unanimously voted to approve and adopt the resolutions authorizing the transaction and related matters.

The Health Net Board reconvened in the evening of July 1, 2015.

Representatives of J.P. Morgan made a presentation to the Health Net Board regarding the proposed consideration to be received in the transaction by Health Net’s stockholders, including a discussion of the synergies identified by Centene and the implied premium of the proposed merger consideration over the current trading price of Health Net common stock.

Ms. Waters reported that terms with Cognizant also had been finalized. Ms. Waters and Morgan Lewis reported on the final negotiations with Centene, including that, in accordance with the Health Net Board’s directive to mitigate antitrust and regulatory risks. Centene had agreed to an antitrust termination fee of $250 million in the event that antitrust approval was not obtained by the termination date for a potential transaction. Morgan Lewis confirmed to the Health Net Board that all of the other key terms upon which the Health Net Board had been focused had been resolved in accordance with the Health Net Board’s direction. Morgan Lewis also reported that Centene had agreed to nominate one independent Health Net director to the Centene Board. The Health Net Board agreed that the individual to be so nominated could be identified at a later date.

The Health Net Board then reviewed the resolutions authorizing the execution of the merger agreement and J.P. Morgan delivered its opinion that the merger consideration to be paid to the holders of Health Net common stock in the merger, and if applicable the subsequent merger, was fair, from a financial point of view, to such stockholders. After carefully considering the merger agreement and the resolutions, the Health Net Board unanimously voted to approve the resolutions authorizing the transaction.

On July 2, 2015, each of Health Net, Centene and the Merger Subs executed and delivered the merger agreement and the chief executive officers of each company also executed and delivered the voting agreements. On the morning of July 2, 2015, prior to market open, Health Net and Centene issued a joint press release announcing the proposed transaction.

Rationale for the Transaction

In the course of their discussions regarding a potential business combination, both Centene and Health Net recognized there were substantial potential strategic and financial benefits of the proposed transaction. This section summarizes the principal potential strategies and financial benefits that the parties expect to realize in the transaction and the other reasons that each party’s board of directors approved the merger agreement and determined to recommend that their company’s respective stockholders vote in favor of the transaction. For a discussion of various factors that could prevent or limit the parties from realizing some or all of these benefits, see “Risk Factors” beginning on page 44.

Each of Health Net and Centene believes the transaction will enhance stockholder value through, among other things, enabling Centene and Health Net to capitalize on the following strategic advantages and opportunities:

 

•

Strengthen Existing Businesses: The addition of Health Net’s complementary business is expected to build on Centene’s robust Medicaid business by bolstering Centene’s presence in the California Medicaid program (“Medi-Cal”), which is the country’s largest. 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 transaction will also strengthen Centene’s presence with dual

 

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eligibles by providing access to dual eligibles who participate in Los Angeles and San Diego counties’ dual eligible demonstration programs, as well as other dual eligibles in California who have enrolled in Health Net’s Medicare Advantage plans or receive Medi-Cal managed care benefits from Health Net.

 

•

Increased Product Diversity Provides Ability to Create a More Comprehensive Portfolio: Centene and Health Net also believe the transaction would extend Centene’s offerings in both government and government funded programs, including Medicare Advantage, the subsidized health insurance exchanges under the ACA, the DOD’s TRICARE and MFLC programs and VA’s PC3/Choice programs. The combined company is expected to be positioned to provide its members access to more solutions, with opportunities for integrated specialty services across the entire enterprise. In particular, both companies have demonstrated success focusing on the subsidized portion of the health insurance marketplace, including Medicaid, Medicare Advantage and the ACA exchanges, but in different geographies. As a result, Centene believes there are opportunities to scale Health Net’s programs that reach underserved communities and extend its business lines for this constituency. The companies believe that focusing on these government programs will allow the combined company to use its innovative local provider networks to deliver high quality, affordable and culturally sensitive health care across the combined company’s expanded business.

 

•

Establish a Leadership Position in the Ongoing Evolution of the Health Care System: Both companies have been market leaders in responding to the recent changes in the health care system. Together, they enhance that positioning by extending their geographic reach and product range, by merging their capabilities to be a leader in all elements of value-based payments, by focusing on the growing segments in the market and by state-of-the art technology solutions.

 

•

Significant Synergy Opportunities: The combined company is estimated to achieve approximately $150 million of annual cost synergies by the second year following the closing of the merger with 50% achieved after one year following closing. The synergy estimates provided above are expected from, among others, efficiencies in core G&A and integration of a range of specialty services. Additional synergies may be achieved over time from leveraging capabilities in IT systems and process management. Collectively these synergies are referred to as the estimated synergies.

 

•

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 estimated to generate diluted earnings per share accretion for Centene of 10% and adjusted diluted earnings per share accretion (that is, excluding the effect of the amortization of intangibles associated with the transaction and any transaction costs) for Centene of 20% in the first year following closing.

The actual synergies derived from the transaction and costs of integration could be different from the foregoing estimates and these differences could be material. Accordingly, there can be no assurance that any of the potential benefits described above or included in the factors considered by the Centene Board described under “The Merger—Centene Board of Directors’ Recommendations and Its Reasons for the Transaction” beginning on page 65 or by the Health Net Board described under “The Merger—Health Net Board of Directors’ Recommendation and Its Reasons for the Transaction” beginning on page 68 will be realized. See “Risk Factors” beginning on page 44 and “Cautionary Note Regarding Forward-Looking Statements” on page 42.

Centene Board of Directors’ Recommendations and Its Reasons for the Transaction

At a meeting on July 1, 2015, the Centene Board unanimously (i) determined that it is in the best interest of Centene and its stockholders, and declared it advisable, to enter into the merger agreement, (ii) approved the merger agreement and the transactions contemplated thereby, including the merger, and (iii) approved and declared the advisability of the Share Issuance, directed that the Share Issuance proposal be submitted to a vote at a meeting of Centene stockholders and unanimously recommended that Centene stockholders vote “FOR” the Share Issuance proposal.

 

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In evaluating the merger agreement and the transactions contemplated thereby, including the Share Issuance, the Centene Board consulted with Centene’s management and legal and financial advisors and, in reaching its determinations, the Centene Board considered a variety of factors with respect to the transaction and the other transactions contemplated by the merger agreement, including the specific reasons described above under “—Rationale for the Transaction” and the factors listed below.

 

•

The review of Centene’s and Health Net’s business, strategy, current and projected financial condition, current earnings and earnings prospects, and the current and prospective regulatory environment;

 

•

The current environment in the managed health care industry, including the trend of consolidation and increased competition, and the likely effect of these factors on Centene in the absence of, the transaction;

 

•

The prospect of significant competition in the future for partners for strategic business transactions;

 

•

The opportunities presented by the transaction, including the opportunity to create a leading diversified health care enterprise, serving over 10 million individuals in 23 states, an enhanced presence in the Western United States and the opportunity to allow Centene to offer a more comprehensive and scalable portfolio of innovative solutions focusing on uninsured and under-insured individuals, including participation in Medicare Advantage, programs with the DoD (TRICARE and MFLC) and VA PC3/Choice;

 

•

The combination of Health Net and Centene would expand the potential product offerings and geographic reach of the combined company with materially improved financial performance and operations in comparison to each company on a stand-alone basis thereby creating a compelling opportunity by leveraging Health Net’s market share over Centene’s geographic scope;

 

•

The combination of Health Net and Centene would maintain and enhance Health Net’s strong commercial business in California, which could also serve as a model for other states in which similar opportunities can be identified;

 

•

Centene has strong specialty care management functions that, in combination with Health Net’s provider management capabilities, including capitation and product diversity expertise, would offer strong growth potential;

 

•

Both Centene and Health Net were leading companies in responding to the ACA and building low cost, high quality solutions for the future and, although they have common business lines and focus on the ACA, there is little overlap in their service areas, allowing for the opportunity to expand the reach of their low cost, high quality solutions by geography and product line;

 

•

Recent and historical market prices for Health Net common stock and Centene common stock and the fact that the stock portion of the merger consideration is subject to a fixed exchange ratio;

 

•

The fact that Centene stockholders immediately prior to the merger will own approximately 71% of Centene’s outstanding stock immediately following the transaction;

 

•

A review of the potential strategic and financial benefits associated with the transaction, including:

 

•

The addition of incremental scale in the western United States, including through Health Net’s complementary network, which Centene believes will provide it with a stronger presence to compete more effectively in the Medi-Cal market and other Medicaid and Medicare markets, including in Arizona, Oregon and Washington;

 

•

The earnings accretion that Centene believes will result from the transaction, including the fact that the transaction is expected to be accretive to Centene’s diluted earnings per share in the first year following the closing of the transaction; and

 

•

Centene’s belief that the transaction presents significant synergy opportunities;

 

•

Centene’s belief that the addition of Health Net’s Medicare platform to Centene’s Medicaid programs provides an opportunity for additional growth across the combined company’s markets;

 

•

Greater participation in California’s dual eligible demonstration program given Health Net’s leading share in this market;

 

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•

The fact that Centene’s management team and legal and financial advisors were involved throughout the negotiations and updated the Centene Board which provided additional perspectives on the negotiations;

 

•

The fact that the issuance of common stock in the transaction will be subject to the approval of Centene’s stockholders and that, in this regard, Centene’s directors and executive officers do not own a significant enough interest in Centene common stock, in the aggregate, to influence substantially the outcome of such stockholder vote;

 

•

The respective opinions of Allen & Company and Evercore, each dated July 1, 2015, to the Centene Board as to the fairness, from a financial point of view and as of the date of the opinion, to Centene of the merger consideration payable by Centene pursuant to the merger agreement, which opinions were subject to certain procedures followed, matters considered, assumptions made and qualifications and limitations on the review undertaken as more fully described in the sections entitled “Opinions of Centene’s Financial Advisors—Allen & Company” and “Opinions of Centene’s Financial Advisors—Evercore”; and

 

•

The Centene Board also specifically considered the terms of the merger agreement, including the following:

 

•

That if Centene were to receive a takeover proposal from a third party that provided superior value to Centene and its stockholders, Centene and its board of directors would be able to consider such superior value and the Centene Board may change its recommendation that Centene stockholders vote in favor of Centene’s issuance of common stock in the merger and/or terminate the merger agreement;

 

•

Centene’s ability, under circumstances described in the merger agreement, to provide information to and engage in discussions or negotiations with a third party that makes an unsolicited bona fide written takeover proposal;

 

•

The ability of the Centene Board, subject to certain conditions, to change its recommendation supporting the merger in response to an intervening event, if the Centene Board determines that failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties;

 

•

The customary nature of Centene’s other representations, warranties and covenants in the merger agreement; and

 

•

The fact that the merger agreement provides for reasonable restrictions on operations of Health Net’s business between the signing of the merger agreement and completion of the merger.

The Centene Board also considered potential risks and other negative factors concerning the transaction in connection with its deliberations of the transaction, including the following:

 

•

The fact that completion of the transaction, and the lower percentage of the outstanding capital stock of the combined Centene-Health Net business represented by Centene stockholders as a result of the merger, will provide Centene stockholders with less of an opportunity to participate in Centene’s future earnings growth than would be anticipated if Centene were to remain a stand-alone entity and its strategic plan were successfully implemented;

 

•

Certain risks inherent in Health Net’s business and operations, including those identified in Health Net’s SEC filings;

 

•

The potential risk of diverting management attention and resources from the operation of Centene’s business, including other strategic opportunities and operational matters, while working toward the completion of the transaction;

 

•

The potential negative effect of the pendency of the transaction on Centene’s and Health Net’s business and relationships with employees, customers, providers, vendors, governmental entities, including regulators and the communities in which they operate, including the risk that certain key members of senior management might choose not to remain employed with Health Net prior to completion of the transaction;

 

•

The general risks of market conditions that could affect the price of Centene and Health Net common stock, as well as the other risks and uncertainties discussed in Health Net’s public filings with the SEC;

 

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•

The potential risks associated with achieving anticipated cost synergies and savings and successfully integrating Health Net’s business, operations and workforce with those of Centene;

 

•

The risk that the transaction may not be completed despite the parties’ efforts or that completion of the merger may be unduly delayed, even if the requisite approval is obtained from each party’s stockholders, including the possibility that conditions to the parties’ obligations to complete the transaction may not be satisfied, and the potential resulting disruptions to Centene’s business;

 

•

The fact that various regulatory approvals are required to complete the transaction, which present a risk that the applicable governmental authorities may condition their grant of required approvals or consents on the imposition of unfavorable terms or conditions or that such approvals and consents will not be able to be obtained at all;

 

•

The fact that the closing of the merger is not conditioned on Centene’s ability to find suitable financing for the cash consideration;

 

•

The fact that if Health Net receives a superior proposal, the Health Net Board can modify or withdraw its recommendation that the Health Net stockholders vote in favor of the merger and/or terminate the merger agreement, if failure to take such action would be inconsistent with the director’s duties under applicable law and after compliance with the applicable requirements set forth in the merger agreement (including payment of a termination fee);

 

•

The fact that upon termination of the merger agreement under specified circumstances, Centene may be required to pay Health Net a termination fee;

 

•

The fact that the parties have incurred and will continue to incur significant transaction costs and expenses in connection with the transaction, regardless of whether the transaction is completed;

 

•

The need to obtain approvals from Centene stockholders and Health Net stockholders in order to complete the transaction;

 

•

The fact that the provisions of the merger agreement impose certain restrictions on the operations of Centene until completion of the merger;

 

•

The fact that certain senior executives of Health Net would receive substantial payments in connection with the merger, and that Health Net may also be obligated to make gross-up payments to those executives for the amount of certain taxes resulting from some of these payments; and

 

•

The Centene Board also considered the type and nature of the risks described under the section entitled “Risk Factors” beginning on page 44, and the matters described under “Cautionary Note Regarding Forward-Looking Statements” beginning on page 42.

In view of the wide variety of factors considered in connection with its evaluation of the transaction and the complexity of these matters, the Centene Board did not consider it practical, nor did it attempt, to quantify, rank or otherwise assign relative weights to the different factors it considered in reaching its decision.

The Centene Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but rather the Centene Board conducted an overall review of the factors described above, including discussions with Centene’s senior management team and outside legal and financial advisors. In considering the factors described above, individual members of the Centene Board may have given different weight to different factors.

Health Net Board of Directors’ Recommendations and Its Reasons for the Transaction

At a meeting on July 1, 2015, the Health Net Board unanimously (i) determined that it is in the best interest of Health Net and its stockholders, and declared it advisable, to enter into the merger agreement, (ii) approved the merger agreement and the transactions contemplated thereby, including the merger, and (iii) directed that the Merger proposal be submitted to a vote at a meeting of Health Net stockholders and unanimously recommended that Health Net stockholders vote “FOR” the Merger proposal.

 

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In evaluating the merger agreement and the transactions contemplated thereby, the Health Net Board consulted with Health Net’s management and legal and financial advisors and, in reaching its determinations, the Health Net Board considered a variety of factors with respect to the transaction and the other transactions contemplated by the merger agreement, including the specific reasons described above under “—Rationale for the Transaction” and the factors listed below.

 

•

Centene has national strength in a key growth segment and Health Net has deep strength in the California market with a broad range of business lines including commercial and government business, such that a combination of Health Net and Centene would be well positioned nationally and internationally for growth, margin improvement and technology improvement;

 

•

The combination of Health Net and Centene would expand the potential product offerings and geographic reach of the combined company with materially improved financial performance and operations in comparison to each company on a stand-alone basis thereby creating a compelling opportunity by leveraging Health Net’s market share over Centene’s geographic scope;

 

•

The combination of Health Net and Centene would maintain and enhance Health Net’s strong commercial business in California, which could also serve as a model for other states in which similar opportunities can by identified;

 

•

Centene has strong specialty care management functions that, in combination with Health Net’s provider management capabilities, including capitation and product diversity expertise, would offer strong growth potential;

 

•

The combination of the Health Net and Centene businesses would bring greater scale to the surviving corporation thus better positioning the surviving corporation to more effectively compete in the evolving managed care organization sector;

 

•

Both Centene and Health Net are leading companies in responding to the ACA and building low cost, high quality solutions for the future and, although they have common business lines and focus on the ACA, there is little overlap in their service areas, allowing for opportunity to expand the reach of their low cost, high quality solutions by geography and product line;

 

•

The expectation that the surviving corporation would achieve approximately $150 million in cost savings and synergies from, among other things, reductions in corporate overhead, specialty company integration, reductions in medical costs and technology platform combinations in comparison to the two companies on a stand-alone basis;

 

•

The expectation that the surviving corporation would have increased resources to invest in future organic and acquisition growth opportunities in comparison to either company on a stand-alone basis;

 

•

The fact that the merger consideration consists of cash, providing Health Net stockholders with certainty of value and liquidity upon completion of the merger, along with a significant stock component, which would result in Health Net stockholders immediately prior to the transactions holding approximately 29% of the common stock of Centene immediately following completion of the merger, thus providing Health Net stockholders with meaningful participation in the upside potential of a larger, more diversified company; and

 

•

The oral opinion of J.P. Morgan delivered to the Health Net Board on July 1, 2015, which was subsequently confirmed in writing on the same day, that, as of such date and based upon and subject to the factors, assumptions, limitations and qualifications set forth in its opinion, the merger consideration to be paid to the holders of Health Net common stock in the merger and, if applicable, the subsequent merger was fair, from a financial point of view, to such stockholders, as more fully described below under the caption “—Opinion of Health Net’s Financial Advisor” beginning on page 89. The full text of the written opinion of J.P. Morgan, dated July 1, 2015, which sets forth, among other things, the assumptions made, matters considered and qualifications and limitations on the review undertaken in rendering its opinion, is attached as Annex F to this joint proxy statement/prospectus.

 

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•

The Health Net Board’s knowledge of Health Net’s business, operations, financial condition, earnings and prospects and its knowledge of Centene’s business, operations, financial condition, earnings and prospects, taking into account Centene’s publicly-filed information and the results of Health Net’s due diligence review of Centene;

 

•

The long-term and recent historical trading prices with respect to shares of Health Net common stock and Centene common stock and the amount of the merger consideration;

 

•

The premium of the merger consideration over the recent trading prices of Health Net common stock;

 

•

The fact that the exchange ratio is fixed and will not fluctuate based upon changes in the market price of Health Net or Centene common stock between the date of the merger agreement and the date of the completion of the merger and therefore the value of the merger consideration payable to Health Net stockholders will increase in the event that the share price of Centene increases prior to completion of the merger;

 

•

The expectation that the surviving corporation will benefit from the experienced management teams of Health Net and Centene;

 

•

The fact that other potential strategic partners were known to be engaged in other transactions based on public information and that a transaction with other such potential strategic partners presented certain significant regulatory challenges;

 

•

The lengthy sale process previously pursued by Health Net that was not completed because of concerns over the ability to obtain regulatory approval in a timely manner and on satisfactory terms;

 

•

The commitments by both Health Net and Centene to complete the merger, as set forth in the merger agreement, and the belief of the Health Net Board that the transaction did not present significant apparent regulatory concerns that would impact the ability to complete the merger;

 

•

The risks and uncertainties associated with maintaining Health Net’s existence as an independent company;

 

•

The hurdles associated with the potential expansion of Health Net on its own into other geographic areas and the greater opportunity of the combined company for expansion;

 

•

The possibility that the transaction may qualify as a tax-free reorganization;

 

•

The Health Net Board’s review of Health Net’s and Centene’s business, strategy, current and projected financial condition, current earnings and earnings prospects, and the current and prospective regulatory environment;

 

•

The current environment in the managed health care industry, including the trend of consolidation and increased competition, and the likely effect of these factors on Health Net in the absence of the transaction;

 

•

The fact that the merger will be subject to the approval of Health Net’s stockholders and that, in this regard, Health Net’s directors and executive officers do not own a significant enough interest in Health Net common stock, in the aggregate, to influence substantially the outcome of such stockholder vote; and

 

•

The fact that Health Net stockholders who do not vote to adopt the merger agreement and approve the merger and who follow certain prescribed procedures are entitled to appraisal rights under Delaware law.

The Health Net Board also specifically considered the terms of the merger agreement, including the following:

 

•

The lack of a financing contingency to Centene’s obligation to complete the merger;

 

•

The ability of Health Net to negotiate an amendment to its agreement with Cognizant regarding the outsourcing transaction described under “—Background of the Merger” that allowed Health Net to extend the pre-commencement termination date of such agreement thereby providing Health Net with an opportunity to pursue the Cognizant technology solution should the merger not be completed;

 

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•

The significant termination fees payable by Centene to Health Net if Centene terminates the merger agreement to pursue a competing transaction with a third party or otherwise;

 

•

That if Health Net were to receive a takeover proposal from a third party that provided superior value to Health Net and its stockholders, Health Net and its board of directors would be able to consider such superior value and the Health Net Board may change its recommendation that Health Net stockholders vote in favor of the Merger proposal and/or terminate the merger agreement;

 

•

Health Net’s ability, under circumstances described in the merger agreement, to provide information to and engage in discussions or negotiations with a third party that makes an unsolicited bona fide written takeover proposal;

 

•

The ability of the Health Net Board, subject to certain conditions, to change its recommendation supporting the merger in response to an intervening event, if the Health Net Board determines that failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties; and

 

•

The customary nature of Health Net’s other representations, warranties and covenants in the merger agreement.

The Health Net Board weighed the foregoing against a number of potentially negative factors, including:

 

•

The fact that the exchange ratio is fixed and will not fluctuate based upon changes in the market price of Health Net or Centene common stock between the date of the merger agreement and the date of the completion of the merger and therefore the value of the merger consideration payable to Health Net stockholders will decrease in the event that the share price of Centene decreases prior to completion of the merger;

 

•

The possibility that the merger may not qualify as a tax-free reorganization;

 

•

The restrictions on the conduct of Health Net’s business during the period between the execution of the merger agreement and the completion of the merger;

 

•

The costs associated with the completion of the merger and the realization of the benefits expected to be obtained in connection with the merger, including management’s time and energy and potential opportunity cost;

 

•

The suspension of the outsourcing arrangement with Cognizant, including the transition of employees, and the foregoing of other potential opportunities that would be incompatible with completion of the merger;

 

•

The costs and risks associated with not pursuing the Cognizant arrangement at this time;

 

•

The challenges in absorbing the effect of any failure to complete the merger, including stockholder and market reactions, as well as the diversion of management’s attention from ongoing business concerns;

 

•

The risk that regulatory agencies may not approve the merger or may impose terms and conditions on their approvals that adversely affect the business and financial results of the surviving corporation as more fully described under “The Merger—Regulatory Approvals Required for the Merger” beginning on page 122;

 

•

The fact that the merger agreement does not preclude a third party from making an unsolicited proposal for a competing transaction with Centene and that, under certain circumstances more fully described in the sections “The Merger Agreement—Covenants and Agreements—No Solicitation” beginning on page 145 and “The Merger Agreement—Covenants and Agreements—Adverse Recommendation Change and Termination” beginning on page 147, Centene may furnish non-public information to and enter into discussions with such third party regarding the competing transaction and the Centene Board may withdraw or modify its recommendations to Centene stockholders regarding the merger and may terminate the merger agreement to enter into a competing transaction under certain circumstances;

 

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•

The challenges inherent in the combination of two businesses of the size and complexity of Health Net and Centene, especially in light of Centene’s lack of experience in consummating a business combination of this size;

 

•

The risk of not being able to realize all of the anticipated cost savings and operational synergies between Health Net and Centene and the risk that other anticipated benefits might not be realized; and

 

•

The risks of the type and nature described under “Risk Factors,” beginning on page 44 and the matters described under “Cautionary Note Regarding Forward-Looking Statements” beginning on page 42.

This discussion of the information and factors considered by the Health Net Board in reaching its conclusions and recommendation includes the principal factors considered by the Health Net Board, but is not intended to be exhaustive and may not include all of the factors considered by the Health Net Board. In view of the wide variety of factors considered in connection with its evaluation of the merger and the other transactions contemplated by the merger agreement, and the complexity of these matters, the Health Net Board did not find it useful and did not attempt to quantify, rank or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the other transactions contemplated by the merger agreement, and to make its recommendation to Health Net stockholders. Rather, the Health Net Board viewed its decisions as being based on the totality of the information presented to it and the factors it considered, including its discussions with, and questioning of, members of Health Net’s management and Health Net’s advisors, as well as its experience and history. In addition, individual members of the Health Net Board may have assigned different weights to different factors.

Certain of Health Net’s directors and executive officers have financial interests in the merger that are different from, or in addition to, those of Health Net’s stockholders generally. The Health Net Board was aware of and considered these potential interests, among other matters, in evaluating the merger and in making its recommendation to Health Net stockholders. For a discussion of these interests, see “—Interests of Directors and Executive Officers in the Merger.”

The Health Net Board unanimously determined that the merger agreement and the transaction contemplated by the merger agreement were advisable and in the best interests of Health Net and its stockholders and approved the merger agreement. Accordingly, the Health Net Board unanimously recommends that Health Net stockholders vote “FOR” the proposal to adopt the merger agreement at the Health Net special meeting.

Opinions of Centene’s Financial Advisors

Allen & Company LLC

Centene has engaged Allen & Company as a financial advisor to Centene in connection with the proposed merger. In connection with this engagement, Centene requested that Allen & Company evaluate and render an opinion to the Centene Board regarding the fairness, from a financial point of view, to Centene of the merger consideration payable by Centene pursuant to the merger agreement. On July 1, 2015, at a meeting of the Centene Board held to evaluate the merger, Allen & Company rendered an oral opinion, which was confirmed by delivery of a written opinion dated July 1, 2015, to the Centene Board to the effect that, as of that date and based on and subject to the matters described in its opinion, the merger consideration payable by Centene pursuant to the merger agreement was fair, from a financial point of view, to Centene.

The full text of Allen & Company’s written opinion, dated July 1, 2015, which describes the procedures followed, matters considered, assumptions made and qualifications and limitations on the review undertaken, is attached to this document as Annex D and is incorporated by reference in its entirety into this joint proxy statement/prospectus. You are encouraged to read Allen & Company’s opinion carefully and in its entirety. Allen & Company’s opinion was intended for the benefit and use of the Centene Board (in its capacity as such) in connection with its evaluation of the merger consideration

 

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from a financial point of view to Centene and does not address any other aspect of the merger. Allen & Company’s opinion did not constitute a recommendation as to the course of action that the Centene Board should pursue in connection with the merger, or otherwise address the merits of the underlying decision by Centene to engage in the merger, including in comparison to other strategies or transactions that might be available to Centene or in which Centene might engage. The opinion does not constitute advice or a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the merger or otherwise.

Allen & Company was not requested to, and it did not, recommend the specific consideration payable in the merger or that any given consideration constituted the only appropriate consideration in the merger. The type and amount of consideration payable in the merger were determined through negotiations between Centene and Health Net, and the decision to enter into the merger was solely that of the Centene Board. Allen & Company’s opinion and financial analyses were only one of many factors considered by the Centene Board in its evaluation of the merger and should not be viewed as determinative of the views of the Centene Board or management with respect to the merger or the consideration payable in the merger. Allen & Company’s opinion as expressed in its opinion letter reflected and gave effect to Allen & Company’s general familiarity with Centene as well as information which it received during the course of its engagement, including information provided by the managements of Centene and Health Net in the course of discussions relating to the merger as more fully described below. In arriving at its opinion, Allen & Company neither conducted a physical inspection of the properties or facilities of Centene, Health Net or any other entity, nor made or obtained any evaluations or appraisals of the assets or liabilities (contingent, off-balance sheet or otherwise) of Centene, Health Net or any other entity or conducted any analysis concerning the solvency or fair value of Centene, Health Net or any other entity. Allen & Company is not an actuary and its services did not include any actuarial determination or evaluation, any attempt to evaluate actuarial assumptions or allowances for losses with respect thereto or any analysis of the adequacy of reserves for losses or other matters and, accordingly, Allen & Company assumed that each of Centene and Health Net has, and the pro forma combined company will have, adequate reserves for losses and other matters.

In arriving at its opinion, Allen & Company, among other things:

 

•

reviewed the financial terms and conditions of the merger as reflected in a draft, dated July 1, 2015, of the merger agreement;

 

•

reviewed certain publicly available historical business and financial information relating to Centene and Health Net, including public filings of Centene and Health Net, and historical market prices and trading volumes for Centene common stock and Health Net common stock;

 

•

reviewed certain financial information relating to Centene and Health Net, including certain internal financial forecasts, estimates and other financial and operating data of Centene and Health Net provided to or discussed with Allen & Company by the respective managements of Centene and Health Net (as adjusted, in the case of the Health Net forecasts, estimates and other financial and operating data, by the management of Centene);

 

•

held discussions with the managements of Centene and Health Net relating to the past and current operations and financial condition and prospects of Centene and Health Net;

 

•

held discussions with the management of Centene as to the strategic rationale for, and potential cost savings expected by the management of Centene to result from, the merger;

 

•

reviewed and analyzed certain publicly available information, including certain stock market data and financial information, relating to selected companies with businesses that Allen & Company deemed generally relevant in evaluating Centene and Health Net;

 

•

reviewed certain publicly available financial information relating to selected transactions that Allen & Company deemed generally relevant in evaluating the merger;

 

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•

reviewed the relative contributions of Centene and Health Net to certain financial metrics of the pro forma combined company based on the internal financial forecasts, estimates and other financial and operating data of Centene and Health Net referred to above;

 

•

reviewed the potential pro forma financial impact of the merger on the estimated earnings per share of Centene based on the internal financial forecasts, estimates and other financial and operating data of Centene and Health Net and the potential cost savings referred to above; and

 

•

conducted such other financial analyses and investigations as Allen & Company deemed necessary or appropriate for purposes of its opinion.

In rendering its opinion, Allen & Company relied on and assumed, with Centene’s consent and without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information available to Allen & Company from public sources, provided to or discussed with Allen & Company by Centene and Health Net or their respective representatives or otherwise reviewed by Allen & Company. With respect to the financial forecasts, estimates and other financial information and data relating to Centene and the potential cost savings anticipated by the management of Centene to result from the merger that Allen & Company was directed to utilize in its analyses, Allen & Company was advised by the management of Centene and assumed, with Centene’s consent, that such forecasts, estimates and other financial and operating data were reasonably prepared in good faith reflecting the best currently available estimates and judgments of such management as to the future financial and operating performance of Centene, such cost savings and the other matters covered thereby. With respect to the financial forecasts, estimates and other information and data (as adjusted by the management of Centene) relating to Health Net that Allen & Company was directed to utilize in its analyses, Allen & Company was advised by the managements of Health Net and Centene and assumed, with Centene’s consent, that such forecasts, estimates and other financial and operating data were reasonably prepared in good faith reflecting the best currently available estimates and judgments of such managements, as the case may be, as to the future financial and operating performance of Health Net and the other matters covered thereby. Allen & Company assumed no responsibility for and expressed no view or opinion as to any such financial forecasts, estimates and other financial and operating data or the assumptions on which they were based. Allen & Company relied, at Centene’s direction, upon the assessments of the managements of Centene and Health Net as to, among other things, (i) the potential impact on Centene and Health Net of certain market and other trends in and prospects for, and governmental, regulatory and legislative policies and matters relating to or affecting, the managed care and specialty services sectors of the health care industry, including with respect to government subsidized health care programs and reimbursement, (ii) existing and future relationships, agreements and arrangements with, and the ability to attract and retain, key employees and commercial relationships with hospitals, physicians and other health care providers, (iii) the technology and intellectual property of Centene and Health Net and (iv) the ability to integrate the businesses of Centene and Health Net. Allen & Company assumed, with Centene’s consent, that there would be no developments with respect to any such matters that would have an adverse effect on Centene, Health Net or the merger (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to its analyses or opinion.

Further, Allen & Company’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Allen & Company as of, the date of its opinion. As the Centene Board was aware, the credit, financial and stock markets have experienced volatility and Allen & Company expressed no opinion or view as to any potential effects of such volatility on Centene, Health Net or the merger (including the contemplated benefits thereof). It should be understood that subsequent developments may affect the conclusion expressed in Allen & Company’s opinion and that Allen & Company assumed no responsibility for advising any person of any change in any matter affecting its opinion or for updating or revising its opinion based on circumstances or events occurring after the date of its opinion.

Allen & Company did not express any opinion as to the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation or consideration payable to any officers, directors or employees of any party to the merger, or any class of such persons or any other party, relative to the merger consideration or

 

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otherwise. Allen & Company also did not express any opinion as to the actual value of Centene common stock when issued in the merger or the prices at which Centene common stock (or any other securities of Centene) or Health Net common stock would trade or otherwise be transferable at any time.

In addition, Allen & Company did not express any opinion as to any tax or other consequences that might result from the merger, nor did Allen & Company’s opinion address any legal, regulatory, tax or accounting matters, as to which Allen & Company understood that Centene obtained such advice as it deemed necessary from qualified professionals. Allen & Company assumed, with Centene’s consent, that the merger would be consummated in accordance with its terms and all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that all governmental, regulatory or other consents, approvals, releases and waivers necessary for the consummation of the merger would be obtained without delay, limitation, restriction or condition, including any divestiture or other requirements, that would have an adverse effect on Centene, Health Net or the merger (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to its analyses or opinion. Allen & Company also assumed, with Centene’s consent, that, if the subsequent merger occurs, the mergers would qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Allen & Company also assumed, with Centene’s consent, that the final executed merger agreement would not differ in any material respect from the draft reviewed by Allen & Company.

Allen & Company’s opinion was limited to the fairness, from a financial point of view and as of the date of its opinion, to Centene of the merger consideration (to the extent expressly specified therein) to be paid by Centene pursuant to the merger agreement. Allen & Company’s opinion did not address any other term, aspect or implication of the merger, including, without limitation, the form or structure of the merger, any consent solicitation undertaken in connection with the merger or any voting or other agreement, arrangement or understanding entered into in connection with the merger or otherwise.

This summary is not a complete description of Allen & Company’s opinion or the financial analyses performed and factors considered by Allen & Company in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Allen & Company arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and it did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Allen & Company believes that its financial analyses and this summary must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of such analyses or factors, could create a misleading or incomplete view of the processes underlying Allen & Company’s analyses and opinion.

In performing its financial analyses, Allen & Company considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond Centene’s and Health Net’s control. No company, business or transaction used in the financial analyses is identical to Centene, Health Net, their respective businesses or the merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the financial analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the companies or businesses analyzed.

The assumptions and estimates contained in Allen & Company’s financial analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by its analyses. In addition, financial analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the assumptions and estimates used in, and the results derived from, Allen & Company’s financial analyses are inherently subject to substantial uncertainty.

 

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The following is a summary of the material financial analyses reviewed with the Centene Board in connection with Allen & Company’s opinion dated July 1, 2015. The financial analyses summarized below include information presented in tabular format. In order to fully understand Allen & Company’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Allen & Company’s analyses. For purposes of the financial analyses described below, references to (i) “implied per share merger consideration” means an implied per share value in the amount of $78.57 based on the per share cash consideration of $28.25 utilizing, for the stock consideration, the merger exchange ratio of 0.622x and the closing price of Centene common stock on July 1, 2015 of $80.90 per share and (ii) estimated earnings before interest, taxes, depreciation and amortization, or EBITDA, means EBITDA, including investment income, as adjusted for one-time, non-recurring items and before stock-based compensation (treated as a non-cash expense).

Health Net Financial Analyses

Selected Public Companies Analysis. In performing a selected public companies analysis of Health Net, Allen & Company reviewed publicly available financial and stock market information of the following eight selected companies that Allen & Company in its professional judgment considered generally relevant for comparative purposes as publicly traded companies with operations in the managed care sector of the health care industry, consisting of four diversified managed care companies and four government-focused managed care companies, collectively referred to as the Health Net selected companies:

 

Diversified		Government-Focused
•    UnitedHealth Group Incorporated		•    Humana Inc.
•    Anthem, Inc.		•    Centene
•    Aetna Inc.		•    WellCare Health Plans, Inc.
•    Cigna Corporation		•    Molina Healthcare, Inc.

Allen & Company reviewed, among other things, firm values, calculated as fully diluted equity values based on closing stock prices on July 1, 2015 plus total debt and minority interests (as applicable) less unrestricted cash and cash equivalents and unconsolidated assets (as applicable), as a multiple of calendar year 2015 and calendar year 2016 estimated EBITDA. Allen & Company also reviewed fully diluted equity values, based on closing stock prices on July 1, 2015, as a multiple of calendar year 2015 and calendar year 2016 estimated EPS. Estimated financial data of the Health Net selected companies were based on public filings, publicly available research analysts’ consensus estimates and other publicly available information. Estimated financial data of Health Net were based both on publicly available research analysts’ consensus estimates for Health Net and internal forecasts and other estimates of Health Net management as adjusted by the management of Centene. The overall low to high calendar year 2015 and calendar year 2016 estimated EBITDA multiples observed for the Health Net selected companies were 9.2x to 14.1x (with a mean of 11.0x and a median of 10.5x) and 6.8x to 12.2x (with a mean of 9.6x and a median of 9.9x), respectively. The overall low to high calendar year 2015 and calendar year 2016 estimated EPS multiples observed for the Health Net selected companies were 16.5x to 29.1x (with a mean of 22.0x and a median of 21.0x) and 15.0x to 25.2x (with a mean of 18.4x and a median of 17.5x), respectively. Allen & Company noted that Health Net’s implied calendar year 2015 and calendar year 2016 estimated EBITDA and calendar year 2015 and calendar year 2016 estimated EPS multiples were (i) 10.1x, 8.3x, 19.7x and 16.5x, respectively, based on publicly available research analysts’ consensus for Health Net, and (ii) 9.0x, 8.0x, 19.4x and 16.1x, respectively, based on internal forecasts and other estimates of Health Net management as adjusted by Centene management. Allen & Company then applied a selected range of calendar year 2015 and calendar year 2016 estimated EBITDA multiples derived from the Health Net selected companies of 9.0x to 11.0x and 8.0x to 10.0x, respectively, and applied a selected range of calendar year 2015 and calendar year 2016 estimated EPS multiples derived from the Health Net selected companies of 18.0x to 22.0x and 16.0x to 20.0x, respectively, to corresponding data of Health Net based on publicly available research analysts’

 

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consensus estimates for Health Net. This analysis indicated the following approximate implied equity value per share reference ranges for Health Net, as compared to the implied per share merger consideration:

 

Implied Equity Value Per Share Reference Ranges Based on:								Implied Per Share Merger Consideration
Calendar Year 2015E EBITDA		Calendar Year 2016E EBITDA		Calendar Year 2015E EPS		Calendar Year 2016E EPS
$57.06 - $71.31		$62.31 - $79.65		$59.40 - $72.60		$63.20 - $79.00		$78.57

Selected Precedent Transactions Analysis. In performing a selected precedent transactions analysis of Health Net, Allen & Company reviewed, to the extent publicly available, financial information relating to 10 selected transactions that Allen & Company in its professional judgment considered generally relevant for comparative purposes as transactions involving target companies with operations in the managed care sector of the health care industry, collectively referred to as the selected transactions:

 

Announcement Date		Acquiror		Target
•       August 20, 2012		•       Aetna Inc.		•       Coventry Health Care, Inc.
•       July 9, 2012		•       Wellpoint, Inc.		•       AMERIGROUP Corporation
•       October 24, 2011		•       Cigna Corporation		•       HealthSpring Inc.
•       March 12, 2007		•       UnitedHealth Group Incorporated		•       Sierra Health Services, Inc.
•       September 27, 2005		•       WellPoint, Inc.		•       WellChoice, Inc.
•       July 6, 2005		•       UnitedHealth Group Incorporated		•       PacifiCare Health Systems, Inc.
•       April 26, 2004		•       UnitedHealth Group Incorporated		•       Oxford Health Plans, Inc.
•       October 27, 2003		•       Anthem Inc.		•       WellPoint Health Networks Inc.
•       October 27, 2003		•       UnitedHealth Group Incorporated		•       Mid-Atlantic Medical Services, Inc.
•       June 3, 2003		•       WellPoint Health Networks Inc.		•       Cobalt Corporation

Allen & Company reviewed firm values, calculated as the purchase prices paid for the target companies in the selected transactions plus total debt and minority interests (as applicable) less unrestricted cash and cash equivalents and unconsolidated assets (as applicable), as a multiple of such target companies’ latest 12 months EBITDA and one-year forward estimated EBITDA and latest 12 months EPS and one-year forward estimated EPS. Financial data of the selected transactions were based on publicly available research analysts’ consensus estimates, public filings and other publicly available information. Financial data of Health Net were based on internal forecasts and other estimates of Health Net’s management as adjusted by the management of Centene. The overall low to high latest 12 months EBITDA and one-year forward estimated EBITDA multiples observed for the selected transactions were 6.1x to 16.3x (with a mean of 11.2x and a median of 12.1x) and 6.3x to 13.7x (with a mean of 10.2x and median of 10.4x), respectively. The overall low to high latest 12 months EPS and one-year forward estimated EPS multiples observed for the selected transactions were 12.7x to 31.6x (with a mean of 18.6x and a median of 17.2x) and 12.5x to 20.1x (with a mean of 16.2x and median of 16.7x), respectively. Allen & Company then applied a selected range of latest 12 months EBITDA and one-year forward estimated EBITDA multiples of 10.0x to 12.0x and 9.0x to 11.0x, respectively, derived from the selected transactions to the latest 12 months (calendar year 2015) and one-year forward (calendar year 2016) estimated EBITDA of Health Net and applied a selected range of latest 12 months EPS and one-year forward estimated EPS multiples of 22.0x to 26.0x and 18.0x to 22.0x, respectively, derived from the selected transactions to the latest 12 months (calendar year 2015) and one-year forward (calendar year 2016) estimated EPS of Health Net. This analysis indicated the following approximate implied equity value per share reference ranges for Health Net, as compared to the implied per share merger consideration:

 

Implied Equity Value Per Share Reference Ranges Based on:								Implied Per Share Merger Consideration
Latest 12 Months EBITDA		One-Year Forward EBITDA		Latest 12 Months EPS		One-Year Forward EPS
$73.54 - $89.66		$74.31 - $92.39		$73.68 - $87.08		$72.58 - $88.71		$78.57

 

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Discounted Cash Flow Analysis. Allen & Company performed a discounted cash flow analysis of Health Net to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that Health Net was forecasted to generate during the second half of the fiscal year ending December 31, 2015 through the full fiscal year ending December 31, 2018 based on internal forecasts and other estimates of Health Net’s management as adjusted by the management of Centene. The implied terminal value of Health Net at the end of the forecast period was calculated by applying to Health Net’s estimated unlevered, after-tax free cash flows a selected range of perpetuity growth rates of 3.75% to 4.25%. The cash flows and terminal values were then discounted to present value (as of June 30, 2015) using discount rates ranging from 8.0% to 9.0%. This analysis indicated the following approximate implied equity value per share reference range for Health Net, as compared to the implied per share merger consideration:

 

Implied Equity Value Per Share Reference Range		Implied Per Share Merger Consideration
$62.52 - $89.94		$78.57

Centene Financial Analyses

Selected Public Companies Analysis. In performing a selected public companies analysis of Centene, Allen & Company reviewed publicly available financial and stock market information of the following eight selected companies that Allen & Company in its professional judgment considered generally relevant for comparative purposes as publicly traded companies with operations in the managed care sector of the health care industry, consisting of five diversified managed care companies and three government-focused managed care companies, collectively referred to as the Centene selected companies:

 

Diversified		Government-Focused

•    UnitedHealth Group Incorporated		•    Humana Inc.
•    Anthem, Inc.		•    WellCare Health Plans, Inc.
•    Aetna Inc.		•    Molina Healthcare, Inc.
•    Cigna Corporation
•    Health Net

Allen & Company reviewed, among other things, firm values, calculated as fully diluted equity values based on closing stock prices on July 1, 2015 plus total debt and minority interests (as applicable) less unrestricted cash and cash equivalents and unconsolidated assets (as applicable), as a multiple of calendar year 2015 and calendar year 2016 estimated EBITDA. Allen & Company also reviewed fully diluted equity values, based on closing stock prices on July 1, 2015, as a multiple of calendar year 2015 and calendar year 2016 estimated EPS. Estimated financial data of the Centene selected companies were based on public filings, publicly available research analysts’ estimates and other publicly available information. Estimated financial data of Centene were based both on publicly available research analysts’ estimates for Centene and internal forecasts and other estimates of Centene’s management. The overall low to high calendar year 2015 and calendar year 2016 estimated EBITDA multiples observed for the Centene selected companies were 9.2x to 12.0x (with a mean of 10.5x and a median of 10.3x) and 6.8x to 11.3x (with a mean of 9.1x and a median of 9.5x), respectively. The overall low to high calendar year 2015 and calendar year 2016 estimated EPS multiples observed for the Centene selected companies were 16.5x to 26.7x (with a mean of 20.9x and a median of 19.7x) and 15.0x to 19.5x (with a mean of 17.3x and a median of 17.2x), respectively. Allen & Company noted that Centene’s implied calendar year 2015 and calendar year 2016 estimated EBITDA and calendar year 2015 and calendar year 2016 estimated EPS multiples were (i) 14.1x, 12.2x, 29.1x and 25.2x, respectively, based on publicly available research analysts’ consensus estimates for Centene, and (ii) 12.5x, 10.3x, 29.2x and 24.9x, respectively, based on internal forecasts and other estimates of Centene’s management. Allen & Company then applied a selected range of calendar year 2015 and calendar year 2016 estimated EBITDA multiples derived from the Centene selected companies of 11.0x to 13.0x and 9.0x to 11.0x, respectively, and applied a selected range of calendar year 2015 and calendar year 2016 estimated EPS multiples derived from the Centene selected companies of 18.0x to 22.0x and 16.0x to

 

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20.0x, respectively, to corresponding data of Centene based on publicly available research analysts’ consensus estimates for Centene. This analysis indicated the following approximate implied equity value per share reference ranges for Centene, as compared to the per share closing price of Centene common stock on July 1, 2015:

 

Implied Equity Value Per Share Reference Ranges Based on:								Centene Per Share Closing Price on July 1, 2015
Calendar Year 2015E EBITDA		Calendar Year 2016E EBITDA		Calendar Year 2015E EPS		Calendar Year 2016E EPS
$60.79 - $73.57		$57.37 - $72.24		$50.04 - $61.16		$51.44 - $64.30		$80.90

Discounted Cash Flow Analysis. Allen & Company performed a discounted cash flow analysis of Centene to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that Centene was forecasted to generate during the second half of the calendar year ending December 31, 2015 through the full calendar year ending December 31, 2018 based on internal forecasts and other estimates of Centene’s management. The terminal value of Centene at the end of the forecast period was estimated by applying a selected range of perpetuity growth rates of 3.75% to 4.25%. The cash flows and terminal values were then discounted to present value (as of June 30, 2015) using discount rates ranging from 8.0% to 9.0%. This analysis indicated the following approximate implied equity value per share reference range for Centene, as compared to the per share closing price of Centene common stock on July 1, 2015:

 

Implied Equity Value Per Share Reference Range		Centene Per Share Closing Price on July 1, 2015
$71.82 - $103.74		$80.90

Additional Information. Allen & Company observed certain additional information that was not considered part of Allen & Company’s financial analyses with respect to its opinion but was referenced for informational purposes, including, among other things, the following:

 

•

the historical trading performance of Health Net common stock and Centene common stock during the 52-week period ended July 1, 2015 (the last trading day prior to public announcement of the merger), which reflected low to high intraday prices during such period for Health Net common stock of approximately $40.84 to $65.33 per share and for Centene common stock of $35.49 to $82.18 per share, respectively;

 

•

publicly available one-year forward research analysts’ stock price targets for Health Net common stock and Centene common stock, which reflected low to high stock price targets for Health Net of $50.00 to $75.00 per share (with a mean of $64.30 per share and a median of $65.50 per share) and for Centene of $73.00 to $89.00 per share (with a mean of $82.08 per share and a median of $84.00 per share);

 

•

implied premiums in selected precedent transactions (i) announced or consummated from January 1, 2009 to June 30, 2015 involving North American target companies with pre-transaction market capitalizations of $4.0 billion to $10.0 billion and (ii) announced or consummated from January 1, 2003 to June 30, 2015 involving companies in the managed care sector of the health care industry, which, after applying a selected range of one-trading day premiums of 15% to 30% and 30-trading day premiums of 20% to 30% to the closing prices of Health Net common stock of $65.06 per share on July 1, 2015 and $62.39 per share on June 1, 2015, respectively, indicated approximate implied equity value per share reference ranges for Health Net of $74.82 to $84.58 per share and $74.87 to $81.11 per share, respectively, as compared to the implied per share merger consideration of $78.57 per share;

 

•

historical exchange ratios of Health Net common stock and Centene common stock over various periods, which indicated an implied exchange ratio for Health Net common stock and Centene common stock on July 1, 2015 of 0.804x, average implied exchange ratios during the one-month, three-month, six-month and one-year periods prior to July 1, 2015 of 0.813x, 0.833x, 0.886x and 0.997x, respectively, and an average implied exchange ratio from July 1, 2013 to July 1, 2015 of 1.029x;

 

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•

relative contributions of Centene and Health Net to the calendar year 2016 and calendar year 2017 estimated revenue, EBITDA and net income, and implied equity and implied enterprise values (based on the merger exchange ratio of 0.622x and the closing price of Centene common stock on July 1, 2015 of $80.90 per share), of the pro forma combined company, which indicated approximate implied exchange ratios based on such contributions of 1.059x and 0.972x (in the case of calendar year 2016 and calendar year 2017 estimated revenue, respectively), 1.069x and 1.038x (in the case of calendar year 2016 and calendar year 2017 estimated EBITDA, respectively), 1.182x and 1.187x (in the case of calendar year 2016 and calendar year 2017 estimated net income, respectively) and 0.804x (in the case of implied equity and enterprise values), as compared to an implied exchange ratio of 0.804x based on the closing prices of Health Net common stock and Centene common stock on July 1, 2015 of $65.06 per share and $80.90 per share, respectively, and 0.971x assuming, for illustrative purposes, 100% stock consideration in the merger; and

 

•

the potential pro forma financial impact of the merger on Centene’s calendar year 2016 and calendar year 2017 estimated EPS, utilizing internal forecasts and other estimates of Centene management and internal forecasts and other estimates of Health Net management as adjusted by Centene management both before and after taking into account potential cost savings expected by the management of Centene to result from the merger, which indicated, based on the implied per share merger consideration, that the merger could be accretive to Centene’s calendar year 2016 estimated EPS by approximately 11.9% (including potential cost savings) and approximately 5.3% (excluding potential cost savings) and accretive to Centene’s calendar year 2017 estimated EPS by approximately 14.7% (including potential cost savings) and approximately 3.7% (excluding potential cost savings).

Miscellaneous

In connection with Allen & Company’s financial advisory services with respect to the merger, Centene has agreed to pay Allen & Company an aggregate cash fee of $25 million, of which $2.5 million was payable upon delivery of Allen & Company’s opinion to the Centene Board in connection with the merger (regardless of the conclusion expressed in such opinion or successful consummation of the merger) and $22.5 million is contingent upon consummation of the merger. Centene also has agreed to reimburse Allen & Company for its reasonable expenses and to indemnify Allen & Company and related parties against certain liabilities, including liabilities under the federal securities laws, arising out of its engagement. Allen & Company in the past has provided, currently is providing and/or in the future may provide investment banking services to Centene unrelated to the merger, for which services Allen & Company has received and/or may receive compensation including, during the two-year period prior to the date of Allen & Company’s opinion, having acted or acting as a financial advisor to Centene in connection with certain potential merger and acquisition transactions and as a co-manager and underwriter in connection with certain senior notes offerings of Centene. Although Allen & Company during the two-year period prior to or as of the date of Allen & Company’s opinion had not provided investment banking services to Health Net for which Allen & Company received compensation, Allen & Company may provide such services to Health Net and/or its affiliates in the future, for which services Allen & Company would expect to receive compensation.

Centene selected Allen & Company to act as its financial advisor in connection with the merger based on Allen & Company’s reputation, experience and familiarity with Centene and its business. Allen & Company, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and related financings, bankruptcy reorganizations and similar recapitalizations, negotiated underwritings, secondary distributions of listed and unlisted securities, and valuations for corporate and other purposes. In the ordinary course of business, Allen & Company as a broker-dealer and market maker and certain of its affiliates may invest or have long or short positions, either on a discretionary or non-discretionary basis, for their own account or for those of Allen & Company’s clients, in the debt and equity securities (or related derivative securities) of Centene, Health Net or their respective affiliates. The issuance of Allen & Company’s opinion was approved by Allen & Company’s fairness opinion committee.

 

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Evercore Group L.L.C.

In connection with the merger, Centene retained Evercore to act as a financial advisor to Centene in connection with the proposed merger. On July 1, 2015, at a meeting of the Centene Board, Evercore rendered its oral opinion, subsequently confirmed by delivery of a written opinion that, based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in its opinion, as of July 1, 2015, the merger consideration was fair, from a financial point of view, to Centene.

The full text of the written opinion of Evercore, dated as of July 1, 2015, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex E to this joint proxy statement/prospectus and is incorporated by reference in its entirety into this joint proxy statement/prospectus. You are urged to read Evercore’s opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the Centene Board (in its capacity as such) in connection with its evaluation of the merger consideration from a financial point of view and did not address any other aspects or implications of the merger. The opinion does not constitute a recommendation to the Centene Board or to any other persons in respect of the merger, including as to how any holder of shares of Centene common stock or Health Net common stock should vote or act in respect of the Centene share issuance or the merger. Evercore’s opinion does not address the relative merits of the merger as compared to other business or financial strategies that might be available to Centene, nor does it address the underlying business decision of Centene to engage in the merger.

In connection with rendering its opinion and performing its related financial analysis, Evercore, among other things:

 

•

reviewed certain publicly available business and financial information relating to each of Centene and Health Net that Evercore deemed to be relevant, including publicly available research analysts’ estimates;

 

•

reviewed the Centene management forecast, the Health Net management forecast, the adjusted Health Net case and the pro forma combined company forecast (each as described hereinafter);

 

•

discussed the past and current operations, financial projections and current financial condition of each of Centene and Health Net with their respective managements;

 

•

reviewed the reported prices and the historical trading activity of each of the Centene common stock and the Health Net common stock;

 

•

compared the financial performance of each of Centene and Health Net and their respective stock market trading multiples with those of certain other publicly traded companies that Evercore deemed relevant;

 

•

compared the proposed financial terms of the merger with publicly available financial terms of certain transactions that Evercore deemed reasonably comparable to the merger;

 

•

reviewed the amount and timing of the estimated synergies as well as the transaction expenses and one-time cash costs arising from the proposed transaction, as estimated by the management of Centene;

 

•

considered the potential pro forma impact of the merger on Centene, based on inputs and analysis provided by Centene management;

 

•

reviewed a substantially final draft of the merger agreement; and

 

•

performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate.

For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of

 

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the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore has not assumed any liability therefor. With respect to the projected financial data relating to Centene and Health Net referred to above, Evercore assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the respective managements of Centene and Health Net as to the future financial performance of the companies under the assumptions reflected therein. Evercore expressed no view as to any projected financial data relating to Centene or Health Net or the assumptions on which they were based. Evercore relied, at Centene’s direction, without independent verification, upon the assessments of the management of Centene as to the estimated synergies.

For purposes of rendering its opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to the consummation of the merger will be satisfied without material waiver or modification thereof. Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the merger will be obtained without any material delay, limitation, restriction or condition that would have a material and adverse effect on Centene or Health Net or the consummation of the merger or materially reduce the benefits to Centene of the merger.

Evercore did not make nor assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of Centene or Health Net, nor was Evercore furnished with any such appraisals, nor did Evercore evaluate the solvency or fair value of Centene or Health Net under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore’s opinion was necessarily based upon information made available to it as of the date of the opinion and financial, economic, market and other conditions as they existed and as could be evaluated on the date of the opinion. It is understood that subsequent developments may affect Evercore’s opinion and that Evercore does not have any obligation to update, revise or reaffirm its opinion.

Evercore was not asked to pass upon, and expressed no opinion with respect to, any matter other than the fairness, from a financial point of view, of the merger consideration to Centene. Evercore did not express any view on, and its opinion did not address, the fairness of the merger to, or any consideration received in connection therewith by, the holders of Centene common stock, Health Net common stock or any other securities, creditors or other constituencies of Centene or Health Net, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Centene or Health Net, or any class of such persons, whether relative to the merger consideration or otherwise.

Evercore assumed that any modification to the structure of the transaction will not vary in any respect material to its analysis. Evercore’s opinion did not address the relative merits of the merger as compared to other business or financial strategies that might be available to Centene, nor did it address the underlying business decision of Centene to engage in the merger. Evercore’s opinion did not constitute a recommendation to the Centene Board or to any other persons in respect of the merger, including as to how any holder of shares of Centene common stock or Health Net common stock should vote or act in respect of the Centene share issuance or the merger. Evercore expressed no opinion as to the price at which shares of Centene common stock or Health Net common stock will trade at any time. Evercore is not a legal, regulatory, accounting or tax expert and assumed the accuracy and completeness of assessments by Centene and its advisors with respect to legal, regulatory, accounting and tax matters.

Set forth below is a summary of the material financial and other analyses performed by Evercore and reviewed with the Centene Board on July 1, 2015, in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before July 1, 2015, and is not necessarily indicative of current market conditions.

 

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The following summary of financial analyses includes information presented in tabular format. These tables must be read together with the text of each summary in order to understand fully the financial analyses. The tables alone do not constitute a complete description of the financial analyses. Considering the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Evercore’s financial analyses.

Selected Peer Group Trading Analysis

Evercore reviewed and compared certain financial and operating information relating to Health Net and Centene to corresponding information of two separate groups of selected publicly traded companies in the managed health care industry. Although none of the selected publicly traded companies is directly comparable to Health Net or Centene, the companies were chosen because they have certain characteristics that are similar to those of Health Net and Centene. The two groups of selected companies were as follows:

 

Diversified Payors		Government-Focused Payors
•    UnitedHealth Group Inc.		•    Humana Inc.
•    Anthem, Inc.		•    Molina Healthcare, Inc.
•    Aetna Inc.		•    WellCare Health Plans, Inc.
•    Cigna Corp.

Evercore calculated and analyzed various financial multiples and ratios of Health Net, Centene and the selected companies as follows:

 

•

Ratios of the applicable closing prices of the companies’ common stock, respectively, to earnings per share, or EPS, which is commonly referred to as a price / earnings multiple, estimated for each of calendar years 2015 and 2016; and

 

•

Ratios of total enterprise value, or TEV (which represents market capitalization plus the total outstanding debt, preferred stock and minority interest, less cash and cash equivalents balances), to earnings before interest, taxes, depreciation, and amortization, or EBITDA, which is commonly referred to as a TEV / EBITDA multiple, estimated for each of calendar years 2015 and 2016.

The multiples for each of the selected companies were calculated using the closing prices of the selected companies’ common stock on July 1, 2015, and were based on, and derived from, the selected companies’ publicly available filings and financial data provided by FactSet Research Systems Inc. The multiples for Health Net and Centene were calculated using the closing prices of their respective common stock on July 1, 2015, and were based on, and derived from, publicly available information, consensus estimates of the Institutional Brokers Estimate System, or IBES, the Centene management forecast and the adjusted Health Net case for each of Health Net and Centene.

 

Health Net

Diversified Payors

Centene

Government- Focused Payors

IBES

Management

Mean

Median

IBES

Management

Mean

Median

Price / Earnings—2015E

19.5x

19.4x

18.1x

18.2x

29.1x

28.5x

25.1x

25.3x

Price / Earnings—2016E

16.1x

16.1x

16.3x

16.4x

24.8x

24.4x

19.2x

19.7x

TEV / EBITDA—2015E

10.0x

9.0x

11.4x

11.5x

14.2x

12.5x

9.5x

9.4x

TEV / EBITDA—2016E

8.3x

8.0x

10.4x

10.1x

12.1x

10.3x

7.8x

7.2x

Applying representative ranges of multiples derived from the peer group trading analysis, Evercore calculated a range of implied equity values per share of Health Net common stock and Centene common stock with respect to the following metrics based on their respective projected financial results:

 

•

Price / earnings multiples for each of estimated calendar years 2015 and 2016; and

 

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•

TEV / EBITDA multiples for each of estimated calendar years 2015 and 2016.

Evercore used the resulting per share equity value reference ranges to calculate the implied exchange ratio by dividing the lowest per share equity value for Health Net common stock by the highest per share equity value for Centene common stock for the low end of the exchange ratio range and dividing the highest per share equity value for Health Net common stock by the lowest per share equity value for Centene common stock for the high end of the exchange ratio range, in each case multiplying such low or high end of the exchange ratio range by 64%, the percentage of the merger consideration represented by Centene common stock (as of July 1, 2015).

 

		Health Net								Centene								Implied Exchange Ratio
		Multiples				$ / Share				Multiples				$ / Share
Price / Earnings—2015E			17.0x - 20.0x			$	56.94 - $66.98				22.5x - 29.0x			$	62.33 - $80.34				0.454x - 0.688x
Price / Earnings—2016E			15.0x - 18.0x			$	60.48 - $72.58				18.0x - 24.5x			$	58.48 - $79.60				0.487x - 0.795x
TEV / EBITDA—2015E			10.0x - 12.0x			$	73.52 - $89.64				9.0x - 14.0x			$	55.76 - $92.03				0.512x - 1.030x
TEV / EBITDA—2016E			8.0x - 10.5x			$	65.25 - $87.85				7.5x - 12.0x			$	56.24 - $95.71				0.437x - 1.000x

No company utilized in the peer group trading analysis is identical to Health Net or Centene. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of Health Net and Centene and other factors that could affect the public trading value of the companies to which they are being compared. In evaluating the companies in the two peer groups, Evercore made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Health Net and Centene, such as the impact of competition on Health Net or Centene and the industry generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of Health Net, Centene, the industry or the financial markets in general. Mathematical analysis, such as determining the mean, median or average, is not in itself a meaningful method of using peer group trading data.

Discounted Cash Flow Analyses

Evercore performed discounted cash flow analyses for each of Health Net and Centene in order to derive implied per share equity reference ranges for Health Net common stock and Centene common stock based on the free cash flows that Health Net and Centene are expected to generate during the calendar years 2015 through 2017 using each of (1) the Centene management forecast, (2) the adjusted Health Net case and (3) IBES consensus estimates, Wall Street research and Evercore estimates for each of Health Net and Centene, which is referred to as the street case.

In its discounted cash flow analyses of Health Net, Evercore utilized a range of perpetuity growth rates of 3.5% to 4.5% to estimate Health Net’s free cash flows after 2017 and discounted all cash flows to present value using a discount rate of 8.5%. In its discounted cash flow analyses of Centene, Evercore utilized a range of perpetuity growth rates of 4.0% to 5.0% to estimate Centene’s free cash flows after 2017 and discounted all cash flows to present value using a discount rate of 8.5%. The perpetuity growth rates and discount rate utilized in these analyses were chosen by Evercore based on its expertise and experience within the managed health care industry and, in the case of the discount rate, an analysis of the weighted average cost of capital of Health Net, Centene and other comparable companies, which was calculated by Evercore as 8.5%.

The analyses described above indicated the per share equity value reference ranges for each of Health Net and Centene indicated below. Based on these per share equity value reference ranges, Evercore calculated implied exchange ratios for each of the Centene management forecast, the adjusted Health Net case and the street case by dividing the lowest per share equity value for Health Net by the highest per share equity value for Centene for the low end of the exchange ratio range and dividing the highest per share equity value for Health Net by the lowest per share equity value for Centene for the high end of the exchange ratio range, in each case multiplying such low or high end of the exchange ratio range by 64%, the percentage of the merger consideration represented by Centene common stock (as of July 1, 2015).

 

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		Low				High
Health Net Implied Per Share Equity Value—Health Net adjusted case		$	73.37			$	91.95
Health Net Implied Per Share Equity Value—Street Case		$	61.52			$	76.64
Centene Implied Per Share Equity Value—Centene management forecast		$	95.49			$	123.52
Centene Implied Per Share Equity Value—Street Case		$	74.55			$	96.92
Implied Exchange Ratio—Centene management forecast and Health Net adjusted case			0.380x				0.617x
Implied Exchange Ratio—Street Case			0.407x				0.658x

Selected Precedent Transaction Analysis

Evercore performed an analysis of selected precedent transactions to compare multiples paid in other transactions to the multiples implied in the merger. Evercore analyzed 10 merger and acquisition transactions that were announced between 2003 and 2012 involving acquisitions of companies in the managed health care industry. The selected precedent transactions and the multiples related thereto are set forth below:

 

Date Announced		Acquiror		Target
August 20, 2012		Aetna Inc.		Coventry Health Care, Inc.
July 9, 2012		WellPoint Inc.		AMERIGROUP Corporation
October 24, 2011		Cigna Corporation		HealthSpring, Inc.
March 12, 2007		UnitedHealth Group Inc.		Sierra Health Services Inc.
September 27, 2005		WellPoint Inc.		WellChoice Inc.
July 6, 2005		UnitedHealth Group Inc.		PacifiCare Health Systems
April 26, 2004		UnitedHealth Group Inc.		Oxford Health Plans Inc.
October 27, 2003		UnitedHealth Group Inc.		Mid-Atlantic Medical Services, Inc.
October 27, 2003		Anthem, Inc.		WellPoint Health Networks Inc.
June 3, 2003		WellPoint Health Networks Inc.		Cobalt Corp.

While none of the companies that participated in the selected precedent transactions is directly comparable to Health Net and none of the transactions in the selected precedent transactions analysis is directly comparable to the merger, Evercore selected these transactions because each of the target companies was involved in the managed health care industry and had operating characteristics and products that for purposes of analysis may be considered similar to certain of Health Net’s operating characteristics and products.

For each of the selected transactions, Evercore calculated and compared the following metrics:

 

•

Ratios of the target’s TEV (based on the implied transaction price) to the target’s last twelve months EBITDA prior to the announcement of the transaction; and

 

•

LTM price / earnings multiples.

This analysis produced the following low, mean, median, and high values for those metrics:

 

Low

Mean

Median

High

TEV / LTM EBITDA

6.0x

11.1x

12.0x

15.9x

LTM Price / Earnings

12.7x

18.6x

17.2x

31.6x

 

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Based on this selected precedent transaction analysis and its professional judgment and experience, Evercore derived a representative TEV / 2015E EBITDA range of 7.0x to 16.0x and a representative 2015E price / earnings range of 13.0x to 32.0x and applied these ranges to Health Net to calculate the following ranges of implied equity values per share of Health Net common stock:

 

		Low				High
TEV / 2015E EBITDA		$	49.34			$	121.88
2015E Price / Earnings		$	43.54			$	107.18

Premiums Paid Analysis

Evercore performed an analysis of selected transactions to compare premiums paid in such transactions to the premium implied in the merger. While none of the companies that participated in the selected transactions is directly comparable to Centene or Health Net and none of the transactions in the selected transactions analysis is directly comparable to the merger, the selected transactions do share certain characteristics as set forth below.

Evercore selected the following 19 worldwide business combinations announced and completed since January 1, 2012, and involving greater than 50% stock consideration and transaction enterprise values in the range of $2.5 billion to $7.5 billion:

 

Date Announced		Acquiror		Target
May 11, 2015		Noble Energy, Inc.		Rosetta Resources, Inc.
May 6, 2015		Crestwood Equity Partners LP		Crestwood Midstream Partners LP
October 13, 2014		Targa Resources Partners LP		Atlas Pipeline Partners, L.P.
August 10, 2014		Kinder Morgan, Inc.		El Paso Pipeline Partners, L.P.
July 23, 2014		BCE Inc.		Bell Aliant Inc.
June 16, 2014		Level 3 Communications, Inc.		tw telecom inc.
April 7, 2014		Mallinckrodt plc		Questcor Pharmaceuticals, Inc.
April 7, 2014		Sun Pharmaceutical Industries Limited		Ranbaxy Laboratories Ltd.
February 24, 2014		Carphone Warehouse		Dixons Retail
October 16, 2013		Liberty Global plc		Ziggo N.V.
October 10, 2013		Regency Energy Partners LP		PVR Partners, L.P.
February 21, 2013		Linn Co, LLC		Berry Petroleum Company, LLC
January 29, 2013		Kinder Morgan Energy Partners, L.P.		Copano Energy, L.L.C.
January 9, 2013		Atlantia SpA		Gemina SpA
December 5, 2012		Freeport-McMoRan Copper & Gold Inc.		Plains Exploration & Production Company
October 17, 2012		ASML Holding NV		Cymer, Inc.
April 30, 2012		Energy Transfer Partners, L.P.		Sunoco, Inc.
April 18, 2012		SXC Health Solutions Corp.		Catalyst Health Solutions, Inc.
January 16, 2012		Pembina Pipeline Corporation		Provident Energy Ltd.

For each of the selected transactions, Evercore analyzed the premium paid to the target stock price one day, one week and four weeks prior to the announcement of the transaction. This analysis indicated the following implied mean, median, high and low premiums for the selected transactions:

 

		Implied Premium
		Mean				Median				High				Low
One Day Prior			24.8	%			22.9	%			51.2	%			(0.4	)%
One Week Prior			25.9	%			25.3	%			53.3	%			7.8	%
Four Weeks Prior			28.7	%			24.7	%			97.4	%			6.9	%

Based on this analysis, Evercore used a premium range of 15%-35%, the market closing prices of Health Net common stock and Centene common stock on July 1, 2015, and the 30-day volume-weighted average price,

 

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or VWAP, of Health Net common stock and Centene common stock on July 1, 2015, to calculate implied per share equity values for Centene common stock and implied exchange ratios. The implied exchange ratios were calculated by dividing each of the lowest and highest implied per share equity values for Health Net common stock by the actual market closing price or 30-day VWAP, as applicable, for Centene common stock, in each case multiplying such low or high end of the exchange ratio range by 64%, the percentage of the merger consideration represented by Centene common stock (as of July 1, 2015).

 

		Health Net								Centene				Implied Exchange Ratio
		Premium				Implied $ / Share				Actual $ / Share
Closing Prices as of July 1, 2015			15% - 35	%		$	74.82 - $87.83			$	80.90				0.592x - 0.695x
30-Day VWAP as of July 1, 2015			15% - 35	%		$	72.11 - $84.65			$	76.21				0.606x - 0.711x

Research Analyst Price Targets

Evercore analyzed research analyst estimates of potential future value of shares of Health Net common stock and Centene common stock, or price targets, based on publicly available equity research published with respect to Health Net and Centene. Based on the research analyst price target reference ranges, Evercore calculated the implied exchange ratio by dividing the lowest price target for Health Net common stock by the highest price target for Centene common stock for the low end of the range and dividing the highest price target for Health Net common stock by the lowest price target for Centene common stock for the high end of the range, in each case multiplying such low or high end of the exchange ratio range by 64%, the percentage of the merger consideration represented by Centene common stock (as of July 1, 2015).

As of July 1, 2015, the observed research analyst price targets and resulting implied exchange ratio range for Health Net common stock and Centene common stock calculated as described above were as follows:

 

		Health Net				Centene
Target Range		$	50.00 - $75.00			$	73.00 - 89.00
Implied Exchange Ratio Range			0.360x - 0.658x

52-Week High / Low Trading Prices

Evercore reviewed the range of trading prices of shares of Health Net common stock and Centene common stock for the 52 weeks ended on July 1, 2015. Based on such historical share price ranges, Evercore calculated the implied exchange ratio by dividing the lowest trading price for Health Net common stock by the highest trading price for Centene common stock for the low end of the range and dividing the highest trading price for Health Net common stock by the lowest trading price for Centene common stock for the high end of the range, in each case multiplying such low or high end of the exchange ratio range by 64%, the percentage of the merger consideration represented by Centene common stock (as of July 1, 2015).

As of July 1, 2015, the 52-week trading price ranges and resulting implied exchange ratio range for Health Net common stock and Centene common stock calculated as described above were as follows:

 

		Health Net				Centene
52-Week Trading Range		$	40.84 - $65.33			$	35.49 - $82.18
Implied Exchange Ratio Range (52-Week Range)			0.318x - 1.179x

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by Evercore. In connection with the review of the merger by the Centene Board, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The

 

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preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of Centene common stock or Health Net common stock. No company used in the above analyses as a comparison is directly comparable to Health Net or Centene, and no transaction used is directly comparable to the merger. Further, Evercore’s analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies or transactions used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Centene, Health Net and their respective advisors. Rounding may result in total sums set forth in this section not equaling 100%.

Evercore prepared these analyses for the purpose of providing an opinion to the Centene Board as to the fairness, from a financial point of view, of the merger consideration to Centene. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates.

The issuance of the fairness opinion was approved by an opinion committee of Evercore.

Pursuant to the terms of Evercore’s engagement letter with Centene, an aggregate fee of $25 million is payable to Evercore for its services as financial advisor to the Centene Board. Of the aggregate fee, $2.5 million is non-contingent and was payable upon the delivery of Evercore’s fairness opinion to the Centene Board, while the remaining $22.5 million will become payable upon consummation of the merger. In addition, Centene has agreed to reimburse Evercore for its reasonable and documented out-of-pocket expenses (including reasonable legal fees, expenses and disbursements) incurred in connection with, and to indemnify Evercore for certain liabilities arising out of, its engagement.

During the two-year prior to the delivery of its opinion, no material relationship existed between Evercore and its affiliates and Centene or Health Net pursuant to which compensation was received by Evercore or its affiliates as a result of such a relationship. Evercore may provide financial or other services to Centene or Health Net in the future and in connection with any such services Evercore may receive compensation.

In the ordinary course of business, Evercore or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of Centene, Health Net and their respective affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.

The Centene Board engaged Evercore to act as a financial advisor based on its qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and other purposes.

 

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Opinion of Health Net’s Financial Advisor

Opinion of J.P. Morgan Securities LLC

Pursuant to an engagement letter dated September 9, 2013 in connection with the prior sale process described under “—Background of the Merger” and amended on June 30, 2015, Health Net retained J.P. Morgan as its financial advisor in connection with the mergers. At the meeting of the Health Net Board on July 1, 2015, J.P. Morgan rendered its oral opinion, subsequently confirmed in writing on the same day, to the Health Net Board that, as of such date and based upon and subject to the factors, assumptions, limitations and qualifications set forth in its opinion, the merger consideration to be paid to the holders of Health Net common stock in the merger and, if applicable, the subsequent merger was fair, from a financial point of view, to such stockholders.

The full text of the written opinion of J.P. Morgan dated July 1, 2015, which sets forth the assumptions made, matters considered, qualifications and limitations on the review undertaken, is attached as Annex F to this joint proxy statement/prospectus and is incorporated herein by reference. Stockholders are urged to read J.P. Morgan’s opinion in its entirety. J.P. Morgan’s opinion is addressed to the Health Net Board, addresses only the fairness, from a financial point of view, to the holders of Health Net common stock of the merger consideration to be paid to such holders in the merger and, if applicable, the subsequent merger, and does not constitute a recommendation to any of Health Net’s stockholders as to how such stockholder should vote with respect to the mergers or any other matter. The summary of J.P. Morgan’s opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion.

In arriving at its opinion, J.P. Morgan, among other things:

 

•

reviewed a draft dated July 1, 2015 of the merger agreement;

 

•

reviewed certain publicly available business and financial information concerning Health Net and Centene and the industries in which they operate;

 

•

compared the proposed financial terms of the mergers with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

 

•

compared the financial and operating performance of Health Net and Centene with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Health Net common stock and Centene common stock and certain publicly traded securities of such other companies;

 

•

reviewed the Health Net management forecast, which included certain internal financial analyses, forecasts and extrapolated forecasts prepared by or at the direction of the management of Health Net relating to its business, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the mergers provided to J.P. Morgan by the management of Health Net, which are referred to as Synergies;

 

•

reviewed the Centene management forecast, which included certain internal financial analyses and forecasts prepared by or at the direction of the management of Centene relating to its business, and reviewed certain extrapolated forecasts prepared by or at the direction of the management of Health Net relating to the business of Centene; and

 

•

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

J.P. Morgan also held discussions with certain members of the management of Health Net and Centene with respect to certain aspects of the mergers, and the past and current business operations of Health Net and Centene, the financial condition and future prospects and operations of Health Net and Centene, the effects of the mergers on the financial condition and future prospects of Health Net and Centene, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

 

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In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Health Net and Centene or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor did it assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of Health Net or Centene under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Health Net and Centene to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the mergers and the other transactions contemplated by the merger agreement will have the tax consequences described in discussions with, and materials provided to it by, representatives of Health Net, and will be consummated as described in the merger agreement, and that the definitive merger agreement would not differ in any material respects from the draft thereof furnished to J.P. Morgan. J.P. Morgan also assumed that the representations and warranties made by Health Net and Centene in the merger agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to Health Net with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the mergers will be obtained without any adverse effect on Health Net or Centene or on the contemplated benefits of the mergers.

The Health Net management forecast furnished to J.P. Morgan by Health Net was prepared by management of Health Net (see “Certain Financial Projections—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor—Financial Projections Related to Health Net” beginning on page 99 of this joint proxy statement/prospectus for more information). The Centene management forecast furnished to J.P. Morgan by Centene was prepared by management of Centene (see “Certain Financial Projections—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor—Financial Projections Related to Centene” beginning on page 104 of this joint proxy statement/prospectus for more information). Neither Health Net nor Centene publicly discloses internal management projections of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the mergers, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections. For more information regarding the use of projections, please refer to the sections entitled “Certain Financial Projections—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor” beginning on page 102 in this joint proxy statement/prospectus.

J.P. Morgan’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. Subsequent developments may affect J.P. Morgan’s opinion and J.P. Morgan does not have any obligation to update, revise, or reaffirm its opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of Health Net common stock in the merger and, if applicable, the subsequent merger, and J.P. Morgan has expressed no opinion as to the fairness of any consideration paid in connection with the mergers to the holders of any other class of securities, creditors or other constituencies of Health Net or as to the underlying decision by Health Net to engage in the mergers. Furthermore, J.P. Morgan has expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the mergers, or any class of such persons relative to the merger consideration to be paid to the holders of Health Net common stock in the mergers or with respect to the fairness of any such compensation. J.P. Morgan has also expressed no opinion as to the price at which Health Net common stock or Centene common stock will trade at any future time.

 

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Since June 28, 2014, the date on which the original engagement letter of J.P. Morgan with Health Net was terminated by Health Net, J.P. Morgan was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of Health Net or any other alternative transaction.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion.

Analysis of Health Net

Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial data of Health Net with similar data for publicly traded companies engaged in businesses which J.P. Morgan judged to be similar in certain respects to Health Net’s business or aspects thereof. The companies selected by J.P. Morgan were as follows:

Commercial Managed Care Organizations

 

•

UnitedHealth Group Incorporated

 

•

Anthem, Inc.

 

•

Aetna Inc.

 

•

Cigna Corporation

 

•

Humana Inc.

Government Managed Care Organizations

 

•

Centene

 

•

Molina Healthcare, Inc.

 

•

WellCare Health Plans, Inc.

None of the selected companies reviewed is identical to Health Net and certain of these companies may have characteristics that are materially different from those of Health Net. These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar in certain respects to those of Health Net based on business sector participation, financial metrics and form of operations. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than would affect Health Net.

For each company listed above, J.P. Morgan calculated and compared various financial multiples and ratios based on publicly available financial data and closing share prices as of July 1, 2015 and, in the case of the companies identified under the heading “Commercial Managed Care Organizations” above, based on financial data and closing share prices as of May 28, 2015. Among other calculations, the information J.P. Morgan calculated for each of the selected companies included:

 

•

the multiple of firm value, which is referred to as FV (calculated as the market value of equity plus total debt and other adjustments, including minority interests, net of cash and cash equivalents) to estimated EBITDA (calculated as earnings before interest, taxes, depreciation and amortization) for calendar years 2015 and 2016, which is referred to as FV/EBITDA; and

 

•

the multiple of stock price of its common equity divided by earnings per share for calendar years 2015 and 2016, which is referred to as P/E.

 

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Results of the analysis were presented for the selected companies, as indicated in the following table:

 

Trading Multiples

Low

High

Mean

Median

FV/EBITDA 2015E

9.4x

13.6x

10.7x

10.5x

FV/EBITDA 2016E

7.2x

12.4x

9.5x

9.6x

P/E 2015E

15.7x

28.9x

21.2x

19.7x

P/E 2016E

14.2x

25.5x

17.6x

16.7x

Based on the results of this analysis and J.P. Morgan’s professional judgment, J.P. Morgan selected a multiple reference range of 9.0x-10.0x for FV/EBITDA for calendar year 2015, a multiple reference range of 7.5x-9.0x for FV/EBITDA for calendar year 2016, a multiple reference range of 16.0x-20.0x for P/E for calendar year 2015 and a multiple reference range of 15.0x-17.0x for P/E for calendar year 2016. After applying such ranges to the appropriate metrics for Health Net as set forth in the Health Net Projections (as defined under “Certain Financial Projections—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor—Financial Projections Related to Health Net” beginning on page 99 of this joint proxy statement/prospectus), the analysis indicated the following range of implied equity value per share for Health Net common stock, rounded to the nearest $0.25:

 

Health Net Implied Equity Value Per Share
		Low				High
FV/EBITDA 2015E		$	61.25			$	68.75
FV/EBITDA 2016E		$	58.00			$	70.75
P/E 2015E		$	53.00			$	66.25
P/E 2016E		$	60.75			$	68.75

The ranges of implied equity value per share for Health Net common stock were compared to (1) the closing price per share of Health Net common stock of $65.06 on July 1, 2015, the last trading day prior to the announcement of the mergers, and (2) the implied value of the merger consideration of $78.57 per share (valuing the stock portion of the merger consideration based on the exchange ratio of 0.6220 and the closing price per share of Centene common stock of $80.90 on July 1, 2015).

Selected Transaction Multiples Analysis

Using publicly available information, J.P. Morgan examined selected transactions involving businesses which J.P. Morgan judged to be similar in certain respects to Health Net’s business or aspects thereof based on J.P. Morgan’s experience and familiarity with Health Net’s industry. The transactions considered and the month and year each transaction was announced are as follows:

 

Announcement Date		Acquiror		Target
June 2015		Anthem, Inc.		Cigna Corporation, which is referred to as the Anthem/Cigna Transaction (1)
August 2012		Aetna Inc.		Coventry Health Care, Inc.
July 2012		WellPoint, Inc.		Amerigroup Corporation
October 2011		Cigna Corporation		HealthSpring, Inc.
November 2007		Cigna Corporation		Great-West Healthcare
March 2007		UnitedHealth Group Incorporated		Sierra Health Services Inc.

 

(1)	Proposed transaction was publicly announced by Anthem but declined by Cigna as of July 1, 2015, the date as of which J.P. Morgan calculated the Transaction Value to LTM EBITDA multiple.

For each of the selected transactions, J.P. Morgan calculated the multiple of the consideration paid in such transaction (rounded to the nearest $100 million), which is referred to as the Transaction Value, to the target

 

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company’s EBITDA for the twelve-month period prior to the announcement date of the applicable transaction, which is referred to as LTM EBITDA. J.P. Morgan’s analysis resulted in a range of Transaction Value to LTM EBITDA multiples of 5.3x to 17.0x for the selected transactions, a mean Transaction Value to LTM EBITDA multiple of 9.8x for the selected transactions and a median Transaction Value to LTM EBITDA multiple of 8.0x for the selected transactions.

Based on the results of this analysis and J.P. Morgan’s professional judgment, J.P. Morgan selected a multiple reference range of 7.5x-11.5x for Transaction Value to LTM EBITDA for Health Net. After applying such range to the appropriate metrics for Health Net as set forth in the Health Net Projections (see “—Certain Financial Projections—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor—Financial Projections Related to Health Net” beginning on page 99 of this joint proxy statement/prospectus for more information), the analysis indicated the following range of implied equity value per share for Health Net common stock, rounded to the nearest $0.25.

 

Health Net Implied Equity Value Per Share
		Low				High
Transaction Value / LTM EBITDA		$	50.00			$	80.25	(1)

 

(1)	This same analysis, when using the Transaction Value to LTM EBITDA multiple for the Anthem/Cigna Transaction on a standalone basis, results in an implied equity value per share for Health Net common stock of $96.75.

The range of implied equity values per share for Health Net common stock was compared to (1) the closing price per share of Health Net common stock of $65.06 on July 1, 2015, the last trading day prior to the announcement of the mergers, and (2) the implied value of the merger consideration of $78.57 per share (valuing the stock portion of the merger consideration based on the exchange ratio of 0.6220 and the closing price per share of Centene common stock of $80.90 on July 1, 2015).

Discounted Cash Flow Analysis

J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per share for Health Net. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by the asset, and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” The “unlevered free cash flows” refers to a calculation of the future cash flows generated by an asset without including in such calculation any debt servicing costs. Specifically, unlevered free cash flow represents unlevered net operating profit after tax, adjusted for depreciation, capital expenditures, changes in net working capital, and certain other one-time cash expenses as applicable. “Present value” refers to the current value of the future cash flows generated by the asset, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital and other appropriate factors. “Terminal value” refers to the present value of all future cash flows generated by the asset for periods beyond the projections period.

J.P. Morgan calculated the present value of unlevered free cash flows for Health Net (1) for the calendar years 2016 through 2018 based upon the financial projections provided by the management of Health Net and (2) for the calendar years 2019 through 2025 based upon extrapolations from the financial projections provided by the management of Health Net that were reviewed and approved by the management of Health Net for J.P. Morgan’s use in connection with its financial analyses and rendering its fairness opinion. J.P. Morgan also calculated a range of terminal values for Health Net at December 31, 2025 by applying a terminal growth rate ranging from 2.0% to 3.0% to the unlevered free cash flows of Health Net for calendar year 2025. The unlevered free cash flows and the range of terminal values were then discounted to present values using a range of discount rates from 8.0% to 9.0%. This discount rate range was based upon J.P. Morgan’s analysis of the capital structures and costs of equity and debt of Health Net and the selected publicly traded companies identified above.

 

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This analysis indicated the following range of implied equity value per share for Health Net common stock, rounded to the nearest $0.25.

 

Health Net Implied Equity Value Per Share
Low		High
$61.00		$	80.50

The range of implied equity values per share for Health Net common stock was compared to (1) the closing price per share of Health Net common stock of $65.06 on July 1, 2015, the last trading day prior to the announcement of the mergers, and (2) the implied value of the merger consideration of $78.57 per share (valuing the stock portion of the merger consideration based on the exchange ratio of 0.6220 and the closing price per share of Centene common stock of $80.90 on July 1, 2015).

Other Information

Historical Trading Range

For reference only and not as a component of its fairness analysis, J.P. Morgan reviewed the trading range of Health Net common stock for the 52-week period ending July 1, 2015, which was $40.84 per share to $65.33 per share, and compared that to (1) the closing price per share of Health Net common stock of $65.06 on July 1, 2015, the last trading day prior to the announcement of the mergers, and (2) the implied value of the merger consideration of $78.57 per share (valuing the stock portion of the merger consideration based on the exchange ratio of 0.6220 and the closing price per share of Centene common stock of $80.90 on July 1, 2015).

Analyst Price Targets

For reference only and not as a component of its fairness analysis, J.P. Morgan also reviewed certain publicly available equity research analyst share price targets for Health Net common stock and noted that the range of such price targets (excluding the high and low estimates) was $58.00 per share to $72.00 per share, and compared that to (1) the closing price per share of Health Net common stock of $65.06 on July 1, 2015, the last trading day prior to the announcement of the mergers, and (2) the implied value of the merger consideration of $78.57 per share (valuing the stock portion of the merger consideration based on the exchange ratio of 0.6220 and the closing price per share of Centene common stock of $80.90 on July 1, 2015).

Analysis of Centene

Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial data of Centene with similar data for publicly traded companies engaged in businesses which J.P. Morgan judged to be similar in certain respects to Centene’s business or aspects thereof. The companies selected by J.P. Morgan were the same companies listed under “—Analysis of Health Net—Public Trading Multiples Analysis” above.

None of the selected companies reviewed is identical to Centene and certain of these companies may have characteristics that are materially different from those of Centene. These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar in certain respects to those of Centene based on business sector participation, financial metrics and form of operations. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than would affect Centene.

Based on the results of the analysis under “—Analysis of Health Net—Public Trading Multiples Analysis” and J.P. Morgan’s professional judgment, J.P. Morgan selected a multiple reference range of 10.0x-13.75x for

 

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FV/EBITDA for calendar year 2015, a multiple reference range of 9.5x-12.5x for FV/EBITDA for calendar year 2016, a multiple reference range of 26.0x-29.5x for P/E for calendar year 2015 and a multiple reference range of 18.0x-25.5x for P/E for calendar year 2016. After applying such ranges to the appropriate metrics for Centene as set forth in the Centene Projections (as defined under “—Certain Financial Projections—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor—Financial Projections Related to Centene” beginning on page 98 of this joint proxy statement/prospectus), the analysis indicated the following range of implied equity value per share for Centene’s common stock, rounded to the nearest $0.25:

 

Centene Implied Equity Value Per Share
		Low				High
FV/EBITDA 2015E		$	57.25			$	82.50
FV/EBITDA 2016E		$	67.25			$	91.75
P/E 2015E		$	72.00			$	81.75
P/E 2016E		$	58.50			$	82.75

The ranges of implied equity value per share for Centene common stock were compared to the closing price per share of Centene common stock of $80.90 on July 1, 2015, the last trading day prior to the announcement of the mergers.

Discounted Cash Flow Analysis

J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per share for Centene.

J.P. Morgan calculated the present value of unlevered free cash flows for Centene (1) for the calendar years 2016 through 2017 based upon the Centene Projections and (2) for the calendar years 2018 through 2025 based upon extrapolations from the Centene Projections that were reviewed and approved by the management of Health Net for J.P. Morgan’s use in connection with its financial analyses and rendering its fairness opinion. J.P. Morgan also calculated a range of terminal values for Centene at December 31, 2025 by applying a terminal growth rate ranging from 2.0% to 3.0% to the unlevered free cash flows of Centene for calendar year 2025. The unlevered free cash flows and the range of terminal values were then discounted to present values using a range of discount rates from 8.0% to 9.0%. This discount rate range was based upon J.P. Morgan’s analysis of the capital structures and costs of equity and debt of Centene and the selected publicly traded companies identified above.

This analysis indicated the following range of implied equity value per share for Centene common stock, rounded to the nearest $0.25.

 

Centene Implied Equity Value Per Share
Low		High
$65.75		$92.00

The range of implied equity values per share for Centene common stock was compared to the closing price per share of Centene common stock of $80.90 on July 1, 2015, the last trading day prior to the announcement of the mergers.

 

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Other Information

Historical Trading Range

For reference only and not as a component of its fairness analysis, J.P. Morgan reviewed the trading range of Centene common stock for the 52-week period ending July 1, 2015, which was $35.49 per share to $82.18 per share, and compared that to the closing price per share of Centene common stock of $80.90 on July 1, 2015, the last trading day prior to the announcement of the mergers.

Analyst Price Targets

For reference only and not as a component of its fairness analysis, J.P. Morgan also reviewed certain publicly available equity research analyst share price targets for Centene common stock and noted that the range of such price targets was $73.00 per share to $89.00 per share, and compared that to the closing price per share of Centene common stock of $80.90 on July 1, 2015, the last trading day prior to the announcement of the mergers.

Other Analysis

Relative Implied Exchange Ratio Analysis

Based upon the implied equity values per share for Health Net and Centene calculated in the Public Trading Multiples Analysis and Discounted Cash Flow Analysis sections for Health Net and Centene described above, J.P. Morgan calculated a range of implied exchange ratios based on a comparison of a share of Health Net common stock (after an adjustment for the cash consideration portion of the merger consideration of $28.25 per share of Health Net common stock) to a share of Centene common stock, as shown in the table below. For each comparison, J.P. Morgan divided the highest equity value per share for Health Net, after adjusting for $28.25 per share of cash consideration, by the lowest equity value per share for Centene to derive the highest exchange ratio implied by each set of reference ranges. J.P. Morgan also divided the lowest equity value per share for Health Net, after adjusting for $28.25 per share of cash consideration, by the highest equity value per share for Centene to derive the lowest exchange ratio implied by each set of reference ranges. The implied exchange ratios resulting from J.P. Morgan’s analysis were:

 

Range of Implied Exchange Ratios
		Low				High
Public Trading Multiples Analysis
FV/EBITDA 2015E			0.4016x				0.7104x
FV/EBITDA 2016E			0.3242x				0.6334x
P/E 2015E			0.3021x				0.5265x
P/E 2016E			0.3924x				0.6945x
Discounted Cash Flow Analysis			0.3573x				0.7955x

The implied exchange ratios for Health Net and Centene were compared to (1) the exchange ratio of a share of Health Net common stock for a share of Centene common stock of 0.4550x, based on the respective closing prices per share on July 1, 2015, after adjustment for the cash consideration of $28.25 per share of Health Net common stock and (2) the proposed exchange ratio of a share of Health Net common stock for a share of Centene common stock in the mergers of 0.6220x.

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing

 

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summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Rounding may result in total sums set forth in this section not equaling 100%.

Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to Health Net, and none of the selected transactions reviewed was identical to the mergers. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of Health Net. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the mergers. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect differently the companies compared with Health Net and the transactions compared with the mergers.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise Health Net with respect to the mergers on the basis of such experience and its familiarity with Health Net.

For services rendered in connection with the mergers (including the delivery of its opinion), Health Net agreed to pay J.P. Morgan $1 million upon delivery of its opinion. Health Net has agreed to pay J.P. Morgan an additional fee of approximately $20 million, which we refer to as the Base Fee, upon the consummation of the merger. The Base Fee was calculated as of the date of this joint proxy statement/prospectus based on the latest closing share price of Centene on August 13, 2015 (provided that the final actual fee will be based on the latest closing share price of Centene on the date of the consummation of the merger). Also, upon the consummation of the merger, Health Net, at its sole and absolute discretion, may pay J.P. Morgan a discretionary fee ranging from $0 to a maximum of approximately 142% of the Base Fee based on, among other things, Health Net’s evaluation of J.P. Morgan’s performance under the engagement letter. In the event the mergers are not consummated and Health Net receives any payment in connection with the termination, abandonment or failure to occur of the proposed mergers, Health Net will pay J.P. Morgan a fee equal to the lesser of 10% of any such payment (less any of the above fees already paid by Health Net and net of Health Net’s expenses) and $10 million, but in no event will the payment to J.P. Morgan exceed the fee that would have been paid to J.P. Morgan if the transaction had been consummated. In addition, Health Net has agreed to pay or reimburse J.P. Morgan for its reasonable expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the Federal securities laws.

During the two years preceding the delivery of J.P. Morgan’s opinion, neither J.P. Morgan nor its affiliates have had any other material financial advisory or other material commercial or investment banking relationships with Health Net or Centene. As of the date of delivery of J.P. Morgan’s opinion, J.P. Morgan and its affiliates held on a proprietary basis approximately 0.15% of Health Net’s outstanding common stock and approximately 0.05% of Centene’s outstanding common stock. In the ordinary course of J.P. Morgan’s businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of Health Net or Centene for its own account or for the accounts of customers and, accordingly, J.P. Morgan may at any time hold long or short positions in such securities.

 

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Certain Financial Projections

Certain Financial Projections Utilized by the Centene Board of Directors and Centene’s Financial Advisors

Financial Projections Related to Centene

Centene does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future performance, earnings or other results given, among other reasons, the uncertainty of the underlying assumptions and estimates. In connection with the Centene Board’s consideration of the merger, Centene’s management prepared or approved certain unaudited financial projections regarding Centene’s future performance for the years 2015 through 2018 on a standalone basis without giving effect to the merger, which is referred to as the Centene management forecast, and provided the Centene management forecast to the Centene Board and to Centene’s financial advisors for their use and reliance in connection with their respective financial analyses and opinions and the years 2015 through 2017 of the Centene management forecast to Health Net and to Health Net’s financial advisor for its use and reliance in connection with its financial analyses and opinion (see the sections described above in this joint proxy statement/prospectus entitled “The Merger—Opinions of Centene’s Financial Advisors” beginning on page 72 of this joint proxy statement/prospectus and “The Merger—Opinion of Health Net’s Financial Advisor” beginning on page 89 of this joint proxy statement/prospectus).

The summaries of these projections are being included in this joint proxy statement/prospectus to give Centene’s stockholders access to non-public information that was provided to Health Net and Centene’s financial advisors in the course of evaluating the proposed merger, and are not intended to influence your decision whether to vote in favor of the Share Issuance proposal or any other proposal at the Centene special meeting.

Centene uses a variety of financial measures that are not in accordance with GAAP as supplemental measures to evaluate its operational performance. While Centene believes that these non-GAAP financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of Centene’s competitors and may not be directly comparable to similarly titled measures of Centene’s competitors due to potential differences in the exact method of calculation.

The following table summarizes the Centene management forecast as of June 2015 for the fiscal years 2015 through 2018 (in millions, except Diluted EPS):

 

		2015				2016				2017				2018
Revenue (1)		$	22,443			$	26,479			$	30,418			$	34,160
Adjusted EBITDA (2)		$	902			$	1,091			$	1,303			$	1,486
Net Income		$	342			$	408			$	479			$	554
Diluted EPS		$	2.77			$	3.25			$	3.75			$	4.32

 

(1)	Revenue excludes investment income.

(2)	Adjusted EBITDA is defined as net earnings from continuing operations attributable to Centene before interest expense, taxes, depreciation and amortization, adjusted to exclude non-cash stock-based compensation expense from continuing operations.

 

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In addition, the following table shows the estimated amount of unlevered free cash flow of Centene calculated by Centene’s financial advisors for purposes of their respective illustrative discounted cash flow analyses, which estimates were derived from the Centene management forecast described under the section entitled “The Merger—Opinions of Centene’s Financial Advisors” beginning on page 72 of this joint proxy statement/prospectus. These calculations were not included in the projections provided to Health Net or J.P. Morgan.

 

		2015E				2016E				2017E				2018E
Adjusted EBITDA (1)		$	902			$	1,091			$	1,303			$	1,486
Depreciation & Amortization			(113	)			(127	)			(140	)			(156	)
Stock-Based Compensation			(69	)			(83	)			(100	)			(112	)
Taxable EBIT		$	720			$	880			$	1,063			$	1,219
Applicable Taxes (2)			(353	)			(445	)			(553	)			(634	)
Net Operating Profit After Taxes		$	367			$	435			$	510			$	585
Plus: Depreciation & Amortization			113				127				140				156
Plus: Stock-Based Compensation			69				83				100				112
Less: Increase in Working Capital			469				405				417				360
Less: Capital Expenditures			(121	)			(143	)			(164	)			(184	)
Less: Statutory Capital Contributions			(668	)			(472	)			(487	)			(432	)
Unlevered Free Cash Flow		$	229			$	436			$	516			$	596

 

(1)	Adjusted EBITDA is defined as net earnings from continuing operations attributable to Centene before interest expense, taxes, depreciation and amortization, adjusted to exclude non-cash stock-based compensation expense from continuing operations.

(2)	Tax rate provided by Centene management for the projected period ranged from 49.0% to 52.0%.

Financial Projections Related to Health Net

In connection with the discussions regarding the proposed merger, Health Net provided to Centene certain unaudited financial projections regarding Health Net’s combined Western Region Operations and Government Contracts segments’ forecasted operating results on a standalone basis for fiscal years 2015 through 2017 as described in the section of this joint proxy statement/prospectus entitled “—Certain Financial Projections—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor” beginning on page 102. In order to assist the Centene Board in its evaluation of the merger, Centene management provided the Health Net management forecast (as described hereinafter) to the Centene Board, with certain adjustments as set forth below reflecting, among other differences, adjustments to anticipated revenues, profitability, membership growth rates and general and administrative expenses. In addition, Centene management extrapolated projections for fiscal year 2018 based on the information provided by Health Net management for the 2015-2017 fiscal years. The Health Net unaudited financial projections, as modified by Centene management, are referred to as the adjusted Health Net case. Centene provided the adjusted Health Net case to the Centene Board and to Centene’s financial advisors for their use and reliance in connection with their respective financial analyses and opinions (see the section described above in this joint proxy statement/prospectus entitled “The Merger—Opinions of Centene’s Financial Advisors”). The adjusted Health Net case was not provided to Health Net or J.P. Morgan.

Health Net uses a variety of financial measures that are not in accordance with GAAP as supplemental measures to evaluate its operational performance. While Health Net believes that these non-GAAP financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of Health Net’s competitors and may not be directly comparable to similarly titled measures of Health Net’s competitors due to potential differences in the exact method of calculation.

 

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The following table summarizes the adjusted Health Net case derived or prepared by Centene management as described above:

 

		2015				2016				2017				2018
Revenue (1)		$	16,372			$	17,381			$	18,480			$	19,650
Adjusted EBITDA (2)		$	643			$	722			$	840			$	929
Net Income		$	260			$	310			$	365			$	407
Diluted EPS		$	3.35			$	4.03			$	4.75			$	5.30

 

(1)	Revenue excludes investment income.

(2)	Health Net Adjusted EBITDA is defined as net earnings attributable to Health Net before interest expense, taxes, depreciation and amortization, and the Health Net management forecast was adjusted by Centene’s management to exclude non-cash stock-based compensation expense.

In addition, the following table shows the estimated amount of unlevered free cash flow of Health Net calculated by Centene’s financial advisors for purposes of their respective illustrative discounted cash flow analyses, which estimates were derived from the adjusted Health Net case, including revised working capital assumptions following receipt of additional information provided by Health Net’s financial advisors and approved by Centene’s management for use in such illustrative discounted analyses described under the section entitled “The Merger—Opinions of Centene’s Financial Advisors.” These calculations were not included in the projections provided to Health Net or J.P. Morgan.

 

		2015E				2016E				2017E				2018E
Adjusted EBITDA (1)		$	643			$	722			$	840			$	929
Depreciation & Amortization			(17	)			(14	)			(15	)			(16	)
Stock-Based Compensation			(29	)			(30	)			(31	)			(32	)
Taxable EBIT		$	597			$	677			$	794			$	881
Applicable Taxes (2)			(321	)			(351	)			(413	)			(458	)
Net Operating Profit After Taxes		$	276			$	326			$	381			$	423
Plus: Depreciation & Amortization			17				14				15				16
Plus: Stock-Based Compensation			29				30				31				32
Less: Increase in Working Capital			—				—				—				—
Less: Capital Expenditures			(30	)			(20	)			(25	)			(25	)
Less: Statutory Capital Contributions			(236	)			(104	)			(108	)			(117	)
Unlevered Free Cash Flow		$	57			$	247			$	294			$	328

 

(1)	Health Net Adjusted EBITDA is defined as net earnings attributable to Health Net before interest expense, taxes, depreciation and amortization, and the Health Net management forecast was adjusted by Centene’s management to exclude non-cash stock-based compensation expense.

(2)	Tax rate provided by Health Net management for the projected period ranged from 51.8% to 53.8%.

Pro Forma Financial Projections Related to the Combined Company

In connection with the discussions regarding the proposed merger, Centene management prepared unaudited financial projections regarding the pro forma financial performance of the combined company on the basis of the adjusted Health Net case and the Centene management forecast, which are referred to as the pro forma combined company forecast. In order to assist the Centene Board in its evaluation of the merger, Centene management provided the pro forma combined company forecast to the Centene Board and Centene’s financial advisors. The pro forma combined company forecast was not provided to Health Net or J.P. Morgan.

 

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The following tables summarizes the pro forma combined company forecast derived or prepared by Centene management as described above:

 

 

		Without Synergies
		Fiscal Year Ending December 31,
		2016E				2017E
Centene
Standalone EBIT (1)		$	847			$	1,020
Pro forma interest expense, net (2)			(83	)			(72	)
New amortization of financing fees			(9	)			(9	)
Amortization of debt premium (3)			12				12
Health Net
Standalone EBITA (4)		$	607			$	718
Combined company synergies (SG&A)			—				—
New amortization of intangibles			(154	)			(154	)
Pro forma pre-tax income		$	1,219			$	1,514
Pro forma taxes			(616	)			(788	)
Pro forma non-controlling interest			(6	)			(7	)
Net income		$	597			$	719
162(m)(6) compensation limitation cost			—				(35	)
Adjusted net income		$	597			$	684
Pro forma Centene fully diluted shares outstanding			174.3				175.8

 

Note:

Assumes merger consideration of $78.57 / share. Also assumes January 1, 2016 transaction closing.

(1)	EBIT is defined as net earnings from continuing operations before interest expense and taxes and excludes investment income.

(2)	Pro forma interest expense, net, includes investment income and existing Centene interest expense.

(3)	Adjustment includes new debt issued plus $400 million of existing Health Net senior notes.

(4)	EBITA is defined as net earnings from continuing operations before interest expense, taxes and amortization, and excludes investment income.

 

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In addition, Centene management prepared forecasts reflecting the pro forma combined company forecast after giving effect to Centene’s views of the estimated synergies, which, for these purposes, assumed estimated cost synergies for each of 2016E and 2017E of approximately $75 million and $150 million, respectively (estimated cost synergies for 2018E were approximately $200 million).

 

		With Synergies
		Fiscal Year Ending December 31,
		2016E				2017E
Centene
Standalone EBIT (1)		$	847			$	1,020
Pro forma interest expense, net (2)			(83	)			(71	)
New amortization of financing fees			(9	)			(9	)
Amortization of debt premium (3)			12				12
Health Net
Standalone EBITA (4)		$	607			$	718
Combined company synergies (SG&A)			75				150
New amortization of intangibles			(154	)			(154	)
Pro forma pre-tax income		$	1,294			$	1,665
Pro forma taxes			(654	)			(866	)
Pro forma non-controlling interest			(6	)			(7	)
Net income		$	634			$	792
162(m)(6) compensation limitation cost			—				(35	)
Adjusted net income		$	634			$	757
Pro forma Centene fully diluted shares outstanding			174.3				175.8

 

Note:

Assumes merger consideration of $78.57 / share. Also assumes January 1, 2016 transaction closing.

(1)	EBIT is defined as net earnings from continuing operations before interest expense and taxes and excludes investment income.

(2)	Pro forma interest expense, net, includes investment income and existing Centene interest expense.

(3)	Adjustment includes new debt issued plus $400 million of existing Health Net senior notes.

(4)	EBITA is defined as net earnings from continuing operations before interest expense, taxes and amortization, and excludes investment income.

Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor

Health Net does not, as a matter of course, make projections as to future performance available to the public other than generally providing, on a quarterly basis, estimated ranges of certain expected financial results and operational metrics for the current or impending fiscal year in its regular earnings releases and other investor materials. Health Net avoids making public projections for extended periods due to, among other reasons, the unpredictability of the underlying assumptions and estimates. However, in connection with its evaluation of the proposed merger, Health Net’s management prepared certain non-public, unaudited financial projections regarding Health Net’s combined Western Region Operations and Government Contracts segments’ anticipated operations were prepared by Health Net’s management for fiscal years 2015 through 2017. Such projections were provided to Health Net’s financial advisor, J.P. Morgan, and to Centene. Health Net also prepared and provided projections for fiscal year 2018 to J.P. Morgan. Such projections for fiscal years 2015 through 2018 are referred to as the Health Net management forecast. The Health Net management forecast was prepared on a standalone basis, including contemplating the implementation of the Cognizant transaction, without giving effect to the mergers and as if the mergers had not been contemplated by Health Net. J.P. Morgan calculated the extrapolations for the calendar years 2019 through 2025 based upon the Health Net management forecast, which extrapolations were reviewed and approved by the management of Health Net. J.P. Morgan also calculated the present value of unlevered free cash flows for Health Net. In addition, the Health Net Board received and

 

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reviewed certain non-public, unaudited financial projections regarding Centene’s anticipated future operations for the fiscal years 2015 through 2017, which were prepared by Centene’s management as described in the section of this joint proxy statement/prospectus entitled “–Certain Financial Projections Utilized by the Centene Board of Directors and Centene’s Financial Advisors” beginning on page 98. Health Net’s management reviewed and performed due diligence regarding such projections. Such projections were also provided to J.P. Morgan.

The summaries of these projections are being included in this joint proxy statement/prospectus to give Health Net’s stockholders access to non-public information that was provided to J.P. Morgan and to Centene in the course of evaluating the proposed merger, and are not intended to influence your decision whether to vote for adoption of the merger agreement or any other proposal at the Health Net special meeting.

Financial Projections Related to Health Net

The following table summarizes the combined Western Region and Government Contracts financial projections regarding Health Net’s anticipated future operations that were prepared by Health Net’s management and exclude Corporate/ Other segments that are not managed within reportable segments (in millions, except EPS):

 

		2015 (1)				Adjusted 2015 (2)				2016				2017				2018
Revenue (3)		$	16,673			$	16,438			$	17,451			$	18,576			$	19,668
Net Income		$	257			$	260			$	311			$	373			$	445
EBITDA (4)		$	609			$	614			$	694			$	825			$	952
EPS—Consolidated		$	3.31			$	3.35			$	4.05			$	4.86			$	5.79

 

(1)	These projections for fiscal year 2015 were prepared in April 2015 prior to the first quarter earnings release and, together with the projections for fiscal years 2016, 2017 and 2018, are referred to as the Health Net Projections.

(2)

These projections for fiscal year 2015 include adjustments made in June 2015 to reflect certain changes in management’s expectations primarily due to a change in the timing of redeterminations for the Medicaid and individual exchange business and a delay in membership for the duals demonstration program.

(3)	Revenue includes investment income.

(4)	EBITDA is defined as earnings before interest, taxes, depreciation and amortization, including investment income and after stock-based compensation.

The following table summarizes the extrapolations for the calendar years 2019 through 2025 calculated by J.P. Morgan based upon the financial projections provided by the management of Health Net, which extrapolations were reviewed and approved by the management of Health Net (in millions):

 

		2019				2020				2021				2022				2023				2024				2025
Revenue (1)		$	20,907			$	22,225			$	23,456			$	24,577			$	25,565			$	26,398			$	27,058
EBITDA (2)		$	983			$	1,045			$	1,079			$	1,124			$	1,163			$	1,195			$	1,218

 

(1)	Revenue includes investment income.

(2)	EBITDA is defined as earnings before interest, taxes, depreciation and amortization, including investment income and after stock-based compensation.

The following table presents the present value of unlevered free cash flows for Health Net calculated by J.P. Morgan based upon the financial projections provided by the management of Health Net, which values were reviewed and approved by the management of Health Net (in millions):

 

		2016				2017				2018				2019				2020				2021				2022				2023				2024				2025
Unlevered Free Cash Flow		$	232			$	273			$	343			$	339			$	357			$	374			$	401			$	426			$	451			$	473

 

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Financial Projections Related to Centene

In connection with the discussions regarding the proposed mergers, Centene provided to Health Net and its financial advisor financial projections regarding Centene’s anticipated future operations for the fiscal years 2015 through 2017, which projections were used by J.P. Morgan in connection with its financial analyses. J.P. Morgan calculated the extrapolations for the calendar years 2018 through 2025 based upon the financial projections provided by the management of Centene, which extrapolations were reviewed and approved by the management of Health Net. J.P. Morgan also calculated the present value of unlevered free cash flows for Centene based upon the above described financial projections and extrapolations.

The following table summarizes the financial projections, which are referred to as the Centene Projections, regarding Centene’s anticipated future operations that were prepared by Centene’s management (in millions, except EPS):

 

		2015				2016				2017
Revenue (1)		$	22,477			$	26,519			$	30,468
Net Income		$	342			$	408			$	479
EBITDA (2)		$	837			$	1,014			$	1,211
EPS—Consolidated		$	2.77			$	3.25			$	3.75

 

(1)	Revenue includes investment income.

(2)	EBITDA is defined as earnings before interest, taxes, depreciation and amortization, including investment income and after stock-based compensation.

The following table summarizes the extrapolations for the calendar years 2018 through 2025 calculated by J.P. Morgan based upon the financial projections provided by the management of Centene, which extrapolations were reviewed and approved by the management of Health Net (in millions):

 

		2018				2019				2020				2021				2022				2023				2024				2025
Revenue (1)		$	34,588			$	38,739			$	42,788			$	46,590			$	49,991			$	52,844			$	55,014			$	56,389
EBITDA (2)		$	1,375			$	1,666			$	1,883			$	2,050			$	2,200			$	2,325			$	2,421			$	2,481

 

(1)	Revenue includes investment income.

(2)	EBITDA is defined as earnings before interest, taxes, depreciation and amortization, including investment income and after stock-based compensation.

The following table presents the present value of unlevered free cash flows for Centene calculated by J.P. Morgan based upon the financial projections provided by the management of Centene, which values were reviewed and approved by the management of Health Net (in millions):

 

		2016				2017				2018				2019				2020				2021				2022				2023				2024				2025
Unlevered Free Cash Flow		$	60			$	123			$	181			$	328			$	445			$	548			$	659			$	774			$	890			$	1,000

EBITDA is a non-GAAP operating financial measure that Health Net and Centene define as earnings (loss) before interest, tax, depreciation and amortization.

EBITDA is meant to reflect the ongoing operating performance of Health Net’s Western Region and Government Contracts segments and Centene’s business operations; consequently, it excludes the impact of items that could be considered “non-operating” in nature. Because Health Net’s and Centene’s management use these measures to evaluate overall performance, Health Net and Centene believe they provide useful information.

As noted above, Health Net uses a variety of financial measures that are not in accordance with GAAP as supplemental measures to evaluate its operational performance. While Health Net believes that these non-GAAP

 

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financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of Health Net’s competitors and may not be directly comparable to similarly titled measures of Health Net’s competitors due to potential differences in the exact method of calculation.

Important Information About Certain Financial Projections

While the unaudited financial projections summarized above in the sections of this joint proxy statement/prospectus entitled “—Certain Financial Projections Utilized by the Centene Board of Directors and Centene’s Financial Advisors” beginning on page 98 and “—Certain Financial Projections Utilized by the Health Net Board of Directors and Health Net’s Financial Advisor” beginning on page 102 were prepared by the respective managements of Centene and Health Net in good faith and based on information available at the time of preparation, they constitute forward-looking information and no assurance can be made regarding actual future events. The estimates and assumptions underlying the unaudited financial projections involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant uncertainties and contingencies, including, among others, risks and uncertainties described in the sections of this joint proxy statement/prospectus entitled “Risk Factors” beginning on page 44 and “Cautionary Statements Regarding Forward-Looking Statements” beginning on page 42, all of which are difficult to predict and many of which are beyond the control of Centene and Health Net, respectively. There can be no assurance that the underlying assumptions or projected results will be realized, and actual results will likely differ, and may differ materially, from those reflected in the unaudited financial projections, whether or not the merger is completed. As a result, the unaudited financial projections cannot necessarily be considered predictive of actual future operating results, and this information should not be relied on as such. Furthermore, rounding may result in total sums set forth in this section not equaling 100%.

The unaudited financial projections were prepared solely for internal use by Centene or Health Net, as the case may be, or their respective financial advisors, and not with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial data, published guidelines of the SEC regarding forward-looking statements and the use of non-GAAP measures or GAAP. In the view of Centene’s management and Health Net’s management, the respective forecasts prepared by them were prepared on a reasonable basis based on the information available to Centene’s management and Health Net’s management, respectively, at the time of their preparation. The unaudited financial projections, however, are not facts and should not be relied upon as being necessarily indicative of actual future results, and readers of this joint proxy statement/prospectus are cautioned not to place undue, or any, reliance on this information. The inclusion of the unaudited financial projections in this joint proxy statement/prospectus is not an admission or representation by Centene or Health Net that such information is material. None of the unaudited financial projections reflect any impact of the merger or the other transactions contemplated by the merger agreement, except as noted herein. As a reminder, actual results may differ materially from those contained in these unaudited financial projections.

The unaudited financial projections summarized in this section were prepared by and are the responsibility of the management of Centene or Health Net, as the case may be. No independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, no independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent registered public accounting firm assumes any responsibility for the prospective financial information. The reports of the independent registered public accounting firms incorporated by reference into this joint proxy statement/prospectus relate to the historical financial information of Centene and Health Net, respectively. Such reports do not extend to the unaudited financial projections and should not be read to do so. Each of these independent registered public accounting firms disclaims any association with the prospective financial information.

 

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By including in this joint proxy statement/prospectus a summary of certain of the unaudited financial projections regarding the operating results of Centene and Health Net, neither Centene, Health Net nor any of their respective advisors or other representatives has made or makes any representation to any person regarding the ultimate performance of Centene or Health Net compared to the information contained in the financial projections whether in the merger agreement or otherwise. The unaudited financial projections cover multiple years and such information by its nature becomes less predictive with each succeeding year.

Summaries of the unaudited financial projections are not included in this joint proxy statement/prospectus in order to induce any Health Net stockholder to vote in favor of the Health Net merger proposal or any of the other proposals to be voted on at the Health Net special meeting or any Centene stockholder to vote in favor of the Centene share issuance proposal or any other proposal to be voted on at the Centene special meeting.

EXCEPT AS MAY BE REQUIRED BY FEDERAL SECURITIES LAWS, NEITHER CENTENE NOR HEALTH NET INTENDS TO UPDATE, AND EACH EXPRESSLY DISCLAIMS ANY RESPONSIBILITY TO UPDATE, OR OTHERWISE REVISE THE ABOVE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR RESPECTIVE PREPARATION OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE SHOWN TO BE IN ERROR OR NO LONGER APPROPRIATE (EVEN IN THE SHORT TERM) OR TO REFLECT CHANGES IN GENERAL ECONOMIC OR INDUSTRY CONDITIONS.

In light of the foregoing and the uncertainties inherent in the unaudited financial projections summarized in this section, stockholders of Centene and Health Net are cautioned not to place undue, if any, reliance on such unaudited financial projections. Since the date the unaudited financial projections summarized in this section were prepared, each of Centene and Health Net has made publicly available its actual results of operations for the quarter ended June 30, 2015. You should review Centene’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on July 28, 2015 and Health Net’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 4, 2015, to obtain this information. See the section entitled “Where You Can Find More Information” beginning on page 220.

Governance of Centene Following Completion of the Merger

Board of Directors The merger agreement provides that the parties will take all actions so that immediately following the completion of the merger, the Centene Board will include one director to be designated by the Health Net Board from those directors serving on the Health Net Board as of July 2, 2015, who qualifies as an “independent” director as defined by Section 303A.02 of the NYSE Listed Company Manual and is reasonably acceptable to the Nominating and Corporate Governance Committee of Centene. Other than such additional director, no changes to the Centene Board or Centene senior management are expected in connection with the consummation of the mergers.

For discussion of the material interests of directors of Centene and Health Net in the merger that may be in addition to, or different from, their interests as stockholders, see “—Interests of Directors and Executive Officers in the Merger” beginning on page 107.

Headquarters

Upon completion of the merger, Centene’s headquarters will remain in St. Louis, Missouri, with operations throughout the country.

 

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Interests of Directors and Executive Officers in the Merger

Interests of Directors and Executive Officers of Centene in the Merger

In considering the recommendations of the Centene Board with respect to its approval of the merger agreement, Centene stockholders should be aware that Centene’s directors and executive officers have interests in the merger that are different from, or in addition to, those of the Centene stockholders generally. The Centene Board was aware of these interests and considered them, among other matters, in approving the merger agreement and making its recommendation that the Centene stockholders vote “FOR” the Share Issuance proposal, the Centene Adjournment proposal and the Charter Amendment proposal. See “The Merger—Rationale for the Transaction” and “The Merger—Centene Board of Directors’ Recommendations and Its Reasons for the Transaction.”

These interests include the following:

 

•

all nine members of the Centene Board, including Mr. Neidorff, will remain on the Centene Board; and

 

•

Mr. Neidorff, the Chairman of the Centene Board and Centene’s President and Chief Executive Officer, will remain as the Chairman of the Centene Board and Centene’s President and Chief Executive Officer.

None of Centene’s directors or executive officers are party to or participates in any plan, program or arrangement that provides such director or executive officer with any kind of compensation that is based on or otherwise related to the completion of the merger.

The information set forth above in this section is intended to comply with Item 402(t) of Regulation S-K under the Securities Act of 1933, as amended, which is referred to as the Securities Act, as it relates to the disclosure of certain information about compensation for Centene’s named executive officers that is based on or otherwise relates to the completion of the merger.

Interests of Directors and Executive Officers of Health Net in the Merger

In considering the recommendation of the Health Net Board that Health Net stockholders vote “FOR” the Merger proposal, Health Net stockholders should be aware that Health Net’s directors and executive officers have interests in the merger that may be different from, or in addition to, those of Health Net stockholders generally. The Health Net Board was aware of these interests and considered them, among other matters, in approving the merger agreement and recommending that the Health Net stockholders adopt the merger agreement.

The following discussion sets forth certain of these interests in the merger of each person who has served as a non-executive director or executive officer of Health Net since January 1, 2014. The amounts presented in the following discussion do not reflect the impact of applicable withholding or other taxes.

Accelerated Vesting of Certain Awards and Benefits

Stock Options

As described below under “—The Merger—Treatment of Health Net Stock Options and Other Stock-Based Awards—Stock Options,” each option to acquire shares of Health Net common stock that is outstanding immediately prior to the effective time of the merger, whether or not then vested or exercisable, will be converted into the right to receive the Health Net stock option consideration. All of the stock options held by Health Net’s non-executive directors and executive officers are fully vested in accordance with their terms.

 

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The following table provides information for each of the non-executive directors and executive officers of Health Net, regarding the aggregate number of shares of Health Net common stock underlying outstanding options as of September 14, 2015, the exercise price of such options and the value of the options.

 

Name		Number of Shares Underlying Outstanding Options				Weighted- Average Exercise Price of Outstanding Options				Value of Outstanding Options (1)				Value of Outstanding Options in Accordance with Merger Agreement (2)
Non-Executive Directors
Mary Anne Citrino			18,959			$	22.31			$	948,615			$	843,770
Theodore F. Craver, Jr.			61,559			$	27.25			$	2,776,458			$	2,430,622
Vicki B. Escarra			13,213			$	49.23			$	305,530			$	225,564
Gale S. Fitzgerald			43,059			$	28.24			$	1,899,537			$	1,657,359
Patrick Foley (3)			61,559			$	27.25			$	2,776,458			$	2,430,622
Roger F. Greaves			61,559			$	27.25			$	2,776,458			$	2,430,622
Douglas M. Mancino			—			$	—			$	—			$	—
George Miller (4)			—			$	—			$	—			$	—
Bruce G. Willison			61,559			$	27.25			$	2,776,458			$	2,430,622
Frederick C. Yeager			7,500			$	55.72			$	124,724			$	79,333
Named Executive Officers
Jay M. Gellert			679,750			$	33.38			$	26,486,634			$	22,540,928
James E. Woys			273,200			$	29.70			$	11,650,669			$	10,085,485
Juanell Hefner			—			$	—			$	—			$	—
Steven J. Sell			—			$	—			$	—			$	—