Molina Healthcare (MOH) Reports Acquisition of Magellan Complete Care for Approx. $820M

Molina Healthcare, Inc. (NYSE: MOH) (“Molina”) announced today that it has entered into a definitive agreement to acquire the Magellan Complete Care (“MCC”) line of business of Magellan Health, Inc. (NASDAQ: MGLN) The purchase price for the transaction is approximately $820 million, net of certain tax benefits. Molina intends to fund the purchase with cash on hand.

Magellan Complete Care is a managed care organization serving members in six states including Arizona and statewide in Virginia. Through its Senior Whole Health branded plans, MCC provides fully integrated plans for Medicaid and Medicare dual beneficiaries in Massachusetts, as well as Managed Long Term Care (“MLTC”, commonly known nationally as “MLTSS”) in New York. As of December 31, 2019, MCC served approximately 155,000 members, with full year 2019 revenues greater than $2.7 billion.

With the addition of MCC, Molina will serve more than 3.6 million members in government-sponsored healthcare programs in 18 states and will have 2020 pro-forma projected revenue of over $20 billion.

Molina believes that the acquisition of the MCC assets represents a strong strategic fit with its portfolio of core Medicaid, high-acuity, and duals businesses. It also creates new markets for growth opportunities in Medicare and Marketplace in an expanded Medicaid footprint. Finally, the addition of MLTSS lives will further strengthen Molina’s leadership and geographic breadth in the important MLTSS growth area.

“Acquiring MCC expands our geographic footprint in our core businesses of managed Medicaid, dual eligibles, and long-term services and supports,” said Joe Zubretsky, president and chief executive officer of Molina. “We believe it will allow us to scale our enterprise-wide platforms and benefit from both operating and fixed cost leverage. The acquisition plays to our strengths where our demonstrated operating capabilities put us in a unique position to improve the business’s margins,” Mr. Zubretsky continued. “We will also intensely focus on maintaining the continuity of care for MCC’s members and stability for its state partners. These considerations have added importance in this current and challenging environment.”

Compelling Strategic and Financial Benefits

• Attractive Geographic and Product Additions. The acquisition of MCC is highly complementary to Molina’s current business. The transaction adds the states of Arizona, Massachusetts, and Virginia to Molina’s Medicaid portfolio. It expands Molina’s current footprint into New York City with a Managed Long Term Care product, adds Massachusetts with a fully integrated Medicare dual eligible product, and broadens Molina’s product offerings in Florida and Wisconsin. The transaction also increases Molina’s Medicare presence and further supports Molina’s high acuity and duals strategy.
• Significant Value Creation. The transaction is expected to add approximately $3 billion of revenue by 2021 and presents an opportunity to significantly leverage Molina’s fixed cost base. The MCC portfolio of contracts is long-tenured and stable. Molina intends to apply its demonstrated performance improvement capabilities to MCC’s cost structure and operations to improve the operating margins of the acquired business to achieve Molina’s target margins. Molina’s strengths and capabilities will be critical to successfully serving new populations if a recession increases Medicaid membership.
• Portfolio Diversification and Enhancement. Opportunities to enhance and expand Molina’s portfolio in such a substantial and synergistic way occur infrequently. This highly complementary acquisition enables Molina to expand its geographic and product footprint quickly and efficiently, creating a broader portfolio that is less affected by state-specific RFP timing and cycles.
• Strong Financial Profile. The net purchase price is approximately 30 percent of full year 2019 revenue. The all-cash acquisition of MCC is expected to be accretive by approximately $0.50 to $0.75 cash earnings per diluted share in the first year of ownership and accretive by at least $1.75 cash earnings per diluted share in the second year of ownership. The transaction is anticipated to deliver returns well in excess of Molina’s cost of capital.

The transaction is subject to federal and state regulatory approvals, and other customary closing conditions. In connection with this transaction, Magellan Health, Inc. has agreed to provide certain transition services following the closing. The transaction is expected to close in the first quarter of 2021.

Advisors

Barclays acted as financial advisor, and Sheppard Mullin and Latham & Watkins acted as legal advisors to Molina.

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