Magellan Health Services becomes No. 1, at a price

Acquisition of Vivra to result in charges and diminished earnings

March 22, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

Magellan Health Services Corp. announced completion yesterday of an acquisition that makes it the country's largest specialty health management firm -- but said integration of the new company will result in restructuring charges of $15 million to $20 million and earnings for the year about 10 percent below projections.

Magellan, based in Columbia, acquired Vivra Inc. of Atlanta and will be combining it into its Magellan Specialty Health division. The division manages care in areas such as cardiology and oncology. This represents an added focus for Magellan, which last year drew 87 percent of its revenue from managing mental health care.

Combining Vivra into Magellan Specialty will mean $12 million to $15 million in charges, primarily writing down the value of receivables, and an additional $3 million to $5 million for severance charges and lease cancellations, said Kevin Helmintoller, vice president for investor relations.

Helmintoller said Magellan was eliminating about 100 jobs in the consolidation, in Atlanta and in a Magellan Specialty office in Florida, but none in Maryland. About half of the eliminated positions were held by temporary workers, he said. Between them, Magellan Specialty and Vivra had about 500 employees before the layoffs.

Also, Helmintoller said, Magellan is expecting about a break-even year from the specialty division, where it had been expecting some profits. That, along with higher-than-expected interest costs, led to lower earnings estimates. The company had been expected to earn 88 cents to 92 cents a share for the year, Helmintoller said, but was now expecting about a dime a share less. That would be essentially flat relative to this year's 79 cents a share.

Expectations remain unchanged, he continued, for the mental health business -- which covers 69 million Americans -- and for a division that provides community services such as therapeutic foster care and group home placements.

Magellan's share price slipped 12.5 cents to close at $5.875.

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