Moving one step further toward a clean bill of financial health, Magellan Health Services, Columbia, Md., said last week it has received a $200 million investment commitment from Toronto-based Onex, which will take a controlling interest in the nation's largest behavioral managed-care provider.
"(This) is a tremendous vote of confidence in our company and our future," Magellan's Chief Executive Officer Steven Shulman said in a written statement. "With the substantially larger equity investment, Magellan will have an even stronger financial foundation when we exit Chapter 11."
Magellan filed for bankruptcy protection in March in a last-ditch attempt to reduce the company's nearly $1 billion debt by half. At the time, a number of key creditors had agreed to a proposed reorganization and to provide Magellan with an additional equity investment of $50 million.
Last week's deal with Onex will replace the investment from the unsecured creditors. Magellan, which generated approximately $2.8 billion in revenue in 2002, covers roughly 63 million people.
The deal marks Onex's first move into the healthcare industry. One of the largest conglomerates in Canada with $23 billion in annual revenue, the company's subsidiaries are primarily involved in the technology, service and manufacturing sectors.
"Magellan represents an exciting new opportunity for Onex in an attractive industry," said Robert Le Blanc, an Onex managing director. "Magellan is the market leader in the behavioral managed healthcare industry, which has grown 11% annually over the last 10 years."
Under the terms of the agreement, Onex will provide $150 million to Magellan to be used for working capital and to pay down debt once the provider emerges from bankruptcy protection, Le Blanc said. Onex has been looking to move into the behavioral healthcare market for more than a year and has been working with Magellan since January, he said.
Magellan began a management overhaul before moving on to restructure its troubled finances.
The company brought in Shulman, a veteran managed-care executive, in December 2002 to replace Daniel Messina, who resigned in November 2002 as Magellan's banks signed off on a deal to keep the company from defaulting on nearly $300 million in debt.
Shulman was formerly chairman, president and CEO of Prudential HealthCare. Within a month, he pulled in Rene Lerer, a physician who had worked with Shulman as chief operating officer at Prudential, to succeed Jay Levin as Magellan's COO. In March, Magellan named Jeff Emerson, who served as president of Cigna HealthCare's mid-Atlantic Region, as chief information officer.
"The new leadership at the company was a factor in our decision," Le Blanc said. "It wasn't just the top executives; I was impressed with senior managers all the way down."
Magellan said the company intends to file its plan of reorganization with the U.S. Bankruptcy Court for the Southern District of New York and expects the court to confirm the plan by early fall.
In addition, the Onex equity deal is subject to approval by the bankruptcy court but already has been approved by Magellan's committee of unsecured creditors and Aetna, the company's largest customer.