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Magellan Health Allies With AlphaCare

Zacks Equity Research

Last week, Magellan Health Services Inc. (MGLN) inked a deal with New York based AlphaCare to make investments and subsequently own 65% stake in the latter. This agreement also marks Magellan Health’s foray into the New York market.

Founded in 2012, AlphaCare is a Medicaid Managed Long Term Care HMO and Medicare Plan providing service to New York’s long-term care and dual eligible populations. AlphaCare obtained necessary license and contracts in New York State, including an HMO license as well as a managed long term care contract with the state. It operates a Managed Long-Term Care Plan in Bronx, Kings, New York, Queens and Westchester Counties and Medicare Plans in Bronx, Kings, New York and Queens Counties. It started enrolling members this August.

Magellan Health, with its suite of products and services, expects to offer better health care at reasonable costs. This in turn will help it expand its customer base, so as to eventually help the company ramp up its growth profile.

Magellan Health has a long standing relation with AlphaCare. It already holds 7% equity stake via its previous equity investment of $2 million in preferred membership units of AlphaCare’s current holding company, AlphaCare Holdings LLC. Additionally, Magellan Health also loaned $6 million to AlphaCare Holdings, LLC. Following the current investment, Magellan will have $25.5 million invested in AlphaCare.

Magellan will have an option to buy the remaining stake of AlphaCare at a price determined by an agreed upon formula beginning on Jan 1, 2017. AlphaCare’s shareholders also will have the right to sell their stake to Magellan or to AlphaCare beginning on Jan 1, 2017 with the same agreed upon formula. They will also have the additional right, subject to certain conditions, to sell 50% of interest to Magellan or AlphaCare prior to Jan 1, 2017, this time at a price determined by a different agreed upon formula.

Magellan Health carries a Zacks Rank #3 (Hold). Healthcare providers Aetna Inc. (AET), Molina Healthcare, Inc. (MOH) and WellPoint Inc. (WLP), among others, carry favorable Zacks Rank #2 (Buy).

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