Aetna is buying three Magellan Health Services centers

Deal will reverse sale of mental care division

December 09, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

Magellan Health Services Inc., which provides mental health coverage, said yesterday that it was selling part of its business to Aetna, its largest customer.

The sale will have "negligible, if any" impact on Magellan's employees in Columbia, said Erin S. Somers, Magellan's vice president for public relations. Magellan had its headquarters in Columbia until about a year ago, when its CEO and other top executives moved to Farmington, Conn. It still has 585 employees in Columbia.

When the deal closes at the end of 2005, Aetna Inc. will take over the three Magellan centers that service 10.5 million Aetna members. Those centers are in Pennsylvania, California and Utah. John Sandberg, an Aetna spokesman, said Aetna's members, including 400,000 in Maryland, should notice little difference.

Magellan contracts with health insurers, government agencies and employers to provide mental health services. In turn, it contracts with therapists and hospitals and pays them to provide care when members need it.

It grew to become by far the largest in its field - at one point covering 70 million people, or one in three insured Americans - with a series of acquisitions in 1997 and 1998. However, it ran up a billion dollars in debt buying its competitors, and filed for bankruptcy reorganization last year. It emerged from bankruptcy in January.

During its buying spree, one of its biggest purchases was Aetna's mental health division, for which it paid $422 million. Now, that acquisition is being reversed, with Aetna buying back that part of the business, exercising an option it gained during the bankruptcy process.

Aetna will pay between $50 million and $55 million, and Magellan will pay the $49 million it still owes Aetna.

The deal will leave Magellan with less than 50 million members and cut about 12 percent of its revenue. Somers said, "It's fair to say we're going to see an effect on both revenue and earnings," but the company didn't release any estimate of earnings impact.

In a statement, Steven J. Shulman, Magellan's CEO, said he was "confident in Magellan's prospects," given its "comprehensive operational and financial turnaround."

Magellan closed yesterday at $32.64, down 29 cents in trading on the Nasdaq stock market.

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