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Magellan slumps after announcing CEO change

NEW YORK (AP) -- Shares of Magellan Health Services Inc. declined Tuesday after the company disclosed Rene Lerer will step down as CEO next month but continue as chairman. Board member Barry Smith will become CEO. It also offered initial 2013 guidance.

THE SPARK: The company said Lerer will step down as CEO on Jan. 1 but remain as executive chairman. He became CEO in February 2008 and was named chairman a year later. He will be Magellan's executive chairman in 2013 and he will become non-executive chairman in 2014 and possibly for another year after that.

Smith was one of Magellan's directors between 2005 and 2008 and rejoined the board in 2011.

The company also said it expects to earn between $3.22 and $3.85 per share at current levels of shares on revenue of $3.56 billion to $3.74 billion in 2013. Analysts expected earnings of $4.19 per share on $3.6 billion in revenue, according to FactSet.

The Avon, Conn., company maintained its estimates for 2012, saying it expects net income of $4.83 to $5.55 per share on revenue of $3.2 billion to $3.4 billion. Analysts expect earnings of $4.31 per share on $3.24 billion in revenue on average.

THE BIG PICTURE: Magellan manages behavioral health, radiology, specialty pharmaceutical and public sector pharmacy benefits programs. It works for health plans, employers and government agencies.

Smith is the chairman of the radiology and imaging services company Optimal Radiology and lead director of hospice and home health company Halcyon Healthcare.

THE ANALYSIS: Citi Investment Research analyst Carl McDonald said the per-share forecast assumes the company won't buy back more stock. However the company bought back $16.8 million in stock this fall, and it has about $150 million remaining on its share repurchase authorization.

McDonald said the CEO change is a surprise, and it's not clear if the move was planned far in advance or if Lerer recently decided to step down as CEO.

Goldman Sachs analyst Matthew Borsch said Magellan will have opportunities to surpass its 2013 guidance based on a Medicare-Medicaid pilot program in Massachusetts and a supplemental insurance program in Florida.

SHARE ACTION: Magellan Health shares lost $3.45, or 6.5 percent, to $49.53 in afternoon trading. The stock rose almost 20 percent in late July after Magellan reported strong second-quarter earnings, reaching an annual high of $56.58. But by the end of the month the shares returned those gains. The stock finished at $52.98 on Monday, its highest closing price since July 31.