A Canadian company that owns movie theaters, sugar refineries and auto-parts firms said yesterday that it plans to take a controlling interest in struggling Magellan Health Services Inc., the largest mental health-benefits provider in the United States.
Onex Corp. said it will invest up to $200 million in the Columbia company, which in March filed for Chapter 11 bankruptcy protection in an attempt to reduce almost $1 billion in long-term debt. The deal is subject to approval by the U.S. Bankruptcy Court for the Southern District of New York.
Magellan said the Onex deal is better than a previously contemplated reorganization plan in which some creditors would have made a new $50 million equity investment and owned most of Magellan. If approved, the new deal would give Onex ownership of about 50 percent of Magellan's equity and give Magellan significantly less debt and more cash when it emerges from Chapter 11.
Magellan manages mental health benefits for 65 million people through managed-care and employee-assistance programs, and it has contracts with 2,300 health insurers, government agencies, unions and businesses.
"Behavioral health is an attractive industry," Robert M. Le Blanc, an Onex managing director, said in an interview yesterday. "Magellan provides a real service to people within corporations and HMO plans. The mental health issues that affect people in everyday life are real, and these guys actually help people become more productive in their work lives. And we like that."
Onex had earnings of $3.91 billion on revenue of $15.9 billion last year. The Toronto-based conglomerate may be best known as the owner of 270 movie theaters, including the Loews Cineplex group, in the United States, Canada, Mexico, Spain and South Korea. Onex also has holdings in the technology and telecommunications industries.
Magellan, in its bankruptcy filing, listed $998.9 million in assets and $1.47 billion in liabilities, including more than $1 billion in bank and bond debt. The company said in March that it had reached an agreement with creditors to cut more than $1 billion of debt, to $500 million.
Yesterday, Magellan chief executive Steven J. Shulman called the commitment by Onex a "tremendous vote of confidence" in his company, which hopes to file an amended reorganization plan with the court within several weeks and emerge from bankruptcy protection by the end of September.
Elie J. Radinsky, an analyst at Jefferies & Co., said the deal "should improve the financial profile of Magellan markedly."
He said he was surprised, though, that Onex would take a plunge into the behavioral-health industry.
"I was surprised it would be them as opposed to a leveraged-buyout firm or somebody else that would have more direct expertise in this area," he said. "But they are very well regarded and have a strong reputation."
Onex has been considering entry into the behavioral health field for more than a year, and it contacted Magellan about four months ago, according to Le Blanc.
"I can see why some people would be surprised," he said. "But Magellan is the market leader and we think the management that's come into the company has done a good job."
Shulman took over Magellan in December. He previously headed Prudential HealthCare Inc. and co-founded Value Health Inc.
Onex's investment will have "no impact" on patients served by Magellan, Le Blanc said.
But Magellan's corporate clients "should be very happy because as a result of us putting so much money into the company Magellan's financial health won't be a question any more," he said. "Magellan is going to emerge as a very strong, financially sound company."
Magellan's stock, which reached $9 per share last year, closed yesterday at 6 cents, a gain of 2 cents in over-the-counter trading.
