Magellan to sell National Mentor

$121 million deal to clear way to focus on core business

January 20, 2001|By June Arney | June Arney,SUN STAFF

Columbia-based Magellan Health Services Inc. has signed a definitive agreement for the sale of National Mentor, its human services segment, for $121 million - a move that streamlines its focus on the core business of behavioral managed care.

The deal, expected to close during the third fiscal quarter, puts National Mentor into the hands of an entity formed by the management of Mentor and Madison Dearborn Partners, a private equity investment firm.

"This represents the final step in our strategy of exiting from provider-based operations," J. Kevin Helmintoller, vice president for investor relations at Magellan, said yesterday. "We think it's the right step for a lot of reasons."

The sale will enable Magellan to further reduce its debt, focus on its core business and more effectively manage that business, he said.

Magellan is to receive $92 million in cash and up to $15 million in interest-bearing promissory notes, with the remainder going for transaction fees.

"This has taken a lot longer than we expected," Helmintoller said. "The health care financing markets have been soft for the last year. They are starting to improve."

Last year, Magellan executives hoped for a sale price closer to $200 million, Helmintoller said. Industry speculation had put the price as high as $300 million.

"This is a reallocating of Magellan's corporate portfolio and refocusing on its behavioral managed care business," said Tom Shinkle, a health care analyst at Imperial Capital LLC, an investment bank in Beverly Hills, Calif.

"This refocusing on behavioral health has been met with increasing market share and higher profit margins."

Magellan incurred debt of more than $1 billion in recent years as it transformed itself from a company that operated mental hospitals into, effectively, a health maintenance organization for mental health.

The Mentor sale and a recent recovery of about $21 million will enable Magellan to significantly reduce its debt, Shinkle said.

The $21 million, expected to be available by the end of the month, was part of the resolution of a number of open contract items associated with a contract between TriWest Healthcare Alliance, a Phoenix-based management service organization, and the federal government, to provide health care through the Tricare program.

Magellan is the country's leading behavioral managed care organization, serving more than 68 million people nationwide, nearly one in three insured Americans. Among its customers are health plans, government agencies, unions and corporations, including more than 20 percent of all Fortune 500 companies.

Madison Dearborn Partners, with offices in Chicago and London, is a leading private equity investment firm with more than $7 billion of capital under management.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.