The business stories that matter, by Fortune's Colin Barr
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May 7, 2008, 4:20 pm

Takeover rumor lifts WellCare

WellCare (WCG) shares spiked near the close of trading Wednesday on no apparent news. A trader tells Fortune’s Scott Moritz the rumor is that the struggling Medicaid HMO will be bought by UnitedHealth (UNH), a big health insurer with some marketplace issues of its own. WellCare shares were up 6% at 4 p.m. EST, after trading higher by about 3% for most of the day.

Investors are betting WellCare could make an attractive target in spite of the uncertainty shrouding the company over the past year. Shares plunged last fall after federal agents raided the company’s Florida offices in search of evidence that the company was overbilling federal health programs. WellCare has said it is cooperating with investigators, and its top three execs left earlier this year, but shares remain more than 60% below their year-ago levels.

UnitedHealth, meanwhile, is dealing with its own problems in the wake of a disappointing first-quarter earnings report and poor results at rivals such as WellPoint (WLP) and Humana (HUM). Analysts have said part of the problem stems from the industry’s success in past years in pushing through price increases - with the result that many users find themselves priced out of the market for the companies’ services.

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Colin Barr covers business and finance for Fortune.com. Previously he was an editor at TheStreet.com and author of the weekly Five Dumbest Things on Wall Street column, and an editor at Dow Jones Newswires.
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