DOW JONES NEWSWIRES
Magellan Health Services Inc. (MGLN) announced plans to pay $110 million in cash and stock for Coventry Health Care Inc.'s (CVH) Medicaid-administration business.
First Health Services Corp. administers drug benefits and provides health-care management and information-technology services to state Medicaid programs. The business, assuming the deal closes July 31, would add $60 million in revenue and $7.5 million of earnings to Magellan the rest of 2009.
The move comes as Medicaid spending is rising faster than many other categories and is putting increased pressure on state budgets. It would also complement Magellan's behavioral health, radiology-benefits management an specialty-pharmacy operations.
Medicaid's pharmacy spending is growing 5% to 7% a year, the company said, making that a prime target for states to seek savings.
The proposed deal also includes a preliminary three-year agreement for Magellan to manage radiology services and provide oncology management services for Coventry in five markets.
Coventry said in April its first-quarter profit slumped 65% on surging claims costs. A series of missteps last year led to Coventry slashing its 2008 forecasts in October, resulting in shares losing half their market value. A subsequent management shakeup returned Chairman Allen Wise, who had helped deliver strong results a decade earlier as chief executive, to the helm.
For Magellan, it has recorded steady growth in recent years as it continues to expand. Its shares closed Thursday at $29.43 while Coventry finished at $17.99. Neither traded premarket.
-By Kevin Kingsbury and Tess Stynes, Dow Jones Newswires; 201-938-2136; kevin.kingsbury@dowjones.com