FOR IMMEDIATE RELEASE
MAGELLAN ACCELERATES STRATEGY TO EXPAND
CARE MANAGEMENT AND RELATED INFORMATION SERVICES,
PUBLIC SECTOR AND PROVIDER SERVICES BUSINESSES
THROUGH REALIGNMENT OF ITS BUSINESS STRUCTURE
CONTINUES CHARTER BEHAVIORAL HEALTH SYSTEM'S
PROVIDER BUSINESS THROUGH JOINT VENTURE
KEY STEPS ARE $400 MILLION REIT TRANSACTION
AND $80 MILLION ANNUAL FRANCHISE ARRANGEMENT
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ATLANTA, GEORGIA, January 30, 1997 -- Magellan Health Services, Inc. (NYSE: MGL)
today announced an acceleration of its strategy to grow the provider services,
care management and related information services, and public sector segments of
the Company through a realignment of its business structure. Following this
realignment, Magellan's domestic provider business, Charter Behavioral Health
Systems, will be operated as a joint venture, CBHS, equally owned by Magellan
and an affiliate of Crescent Real Estate Equities, Inc. (NYSE: CEI).
As part of this business realignment, Magellan has entered into a definitive
agreement under which substantially all of the hospitals, real estate and
related personal property used in its Charter subsidiary's domestic provider
operations would be acquired by Crescent in a real estate investment trust
(REIT) transaction. The joint venture will operate the facilities under a
franchise agreement with Magellan and a lease agreement with Crescent. Crescent
will lease the real estate and related assets to CBHS for annual rent beginning
at $40 million and increasing at 5% per year, compounded.
Magellan will issue warrants to both Crescent and its affiliate (the Affiliate)
for 1,283,500 shares each of Magellan common stock at $30 per share to become
exercisable over 12 years. The Affiliate will issue warrants to Magellan for the
purchase of 2 1/2 % of the Affiliate's common stock with terms substantially
equivalent to Magellan's warrants issued to Crescent. In exchange for the sale
of Charter's real estate assets to Crescent, the Affiliate's 50% ownership
interest in CBHS, and the 2,567,000 total Magellan warrants, Magellan will
receive $400 million in cash from Crescent and the warrants in the Affiliate.
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In addition, CBHS will pay Magellan approximately $80 million in annual
franchise fees (subject to increase) for the use of assets retained by Magellan
and for support in certain areas that Magellan will provide CBHS. The franchise
fees paid by CBHS will be subordinated to lease obligations. The assets being
retained by Magellan include, but are not limited to, the "CHARTER" name, other
intellectual property assets, treatment protocols and procedures, clinical
quality management, operating processes and the "1-800-CHARTER" telephone call
center. Magellan will provide CBHS ongoing support in areas including managed
care contracting services, advertising and marketing assistance, risk management
services, outcomes monitoring, and consultation on matters relating to
reimbursement, government relations, clinical strategies, regulatory matters,
strategic planning and business development.
Magellan said that the transactions would monetize a significant portion of the
Company's fixed assets and add $400 million cash, before debt repayment, to
Magellan's balance sheet; deconsolidate the provider business, yet maintain the
ability to contribute to earnings per share through franchise fees; and
establish a business platform from which Magellan can offer its management and
information services expertise to other healthcare concerns.
As a result of this transaction, Magellan will deconsolidate the hospitals and
record an equity interest in CBHS. The gain on the sale of the fixed assets will
be offset by transaction costs, write-off of goodwill, and collection fees
associated with the collection of account receivables. The one-time pre-tax loss
to Magellan as a result of this transaction is expected to be $45 to $55 million
and is expected to be recognized in the third fiscal quarter of 1997. Going
forward, Magellan will receive approximately $80 million per year in franchise
fees and a 50% equity interest in CBHS's earnings.
Mac Crawford, Chairman and Chief Executive Officer of Magellan, said, "Our
decision to realign our businesses is a significant step in Magellan's
continuing development as the preeminent integrated behavioral healthcare
company. By separating Charter's domestic provider operations, Magellan will be
able to focus on the segments of our business with the greatest near-term growth
potential -- care management and related information services and public sector
services. At the same time, we will retain the strategic benefits of the
integration of the finance and delivery of care through our ownership in CBHS."
Magellan said it would remain the nation's largest integrated behavioral
healthcare system, and that the separation of CBHS would not affect Magellan's
ability to enter into national contracts integrating the delivery and management
of behavioral healthcare, nor its ability to offer products such as risk
capitation services. The Company said it would use the proceeds of the REIT
transaction to pursue acquisitions in the care management and related
information services industry, develop new products, increase managed care and
public sector marketing efforts, and reduce debt. Magellan believes that under
the terms of the Company's 11 1/4% senior
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subordinated bond indenture, these transactions would allow bondholders the
right to put their bonds at 101% of face value.
The Company's other primary business units are Green Spring Health Services and
Magellan Public Solutions (MPS). Green Spring is one of the nation's largest
managed behavioral healthcare companies, with over 15 million lives under
management. MPS provides behavioral care, management and support services to
public sector agencies through programs such as National Mentor, Inc. (Mentor),
a community-based foster care program acquired by the Company in January, 1995.
The Company acquired a 61% ownership interest in Green Spring in December 1995.
For fiscal year 1996, Green Spring had revenues of $265 million, an increase of
33% over fiscal 1995. Mentor had revenues of $70 million in 1996 vs. revenues of
approximately $58 million in 1995, an increase of over 20%.
Crawford continued, "The growth of both Green Spring and Mentor has exceeded our
expectations. The increased focus on these businesses and the strengthening of
our balance sheet will enable us to accelerate Green Spring's growth through
acquisition and diversification into other areas of carve-out specialized care
management services. We also expect to step up the growth of our public sector
business through expansion of such programs as Mentor and AdvoCare, Green
Spring's public sector unit."
The Company said that for fiscal year 1997, it anticipates revenues of $375
million for Green Spring and nearly $90 million for Mentor before any benefits
of these transactions.
The Company said the decision to enter into the joint venture is consistent with
management=s belief that Magellan=s share price reflects neither the strong
growth trends currently seen in the Company=s care management and related
information services businesses, nor the long-term potential of the Company=s
provider business. The Company added that it believes a secondary benefit of
this new structure should be to enhance the value of Magellan's stock as
currency for future acquisitions.
Crawford said, "With Crescent, Magellan and CBHS gain a strategic partner who
recognizes the long term nature of the provider business and has the financing
and real estate expertise that CBHS will need to capitalize on opportunities for
growth and consolidation in the provider business. In addition, through
Magellan=s continued ownership interest in CBHS and retention of CBHS=s
intellectual assets, our stockholders will participate in the continued
consolidation of the provider business.@
John DeStefanis will be President and CEO of CBHS, and CBHS's board will include
two representatives chosen by Magellan and two chosen by the Affiliate,
including John Goff, Crescent's Vice Chairman, who will be Chairman of CBHS.
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John DeStefanis, President of Charter Behavioral Health Systems, said, "Crescent
will be a valuable partner in CBHS's efforts to access financing independent of
the stock market, which in our view has undervalued Charter's assets and
prospects. We believe that as the clear industry leader, Charter is well
positioned to benefit as both public and private payers shift their focus from
cost-control to broader measures of value from providers."
Mr. DeStefanis continued, "CBHS is the nation's largest and most comprehensive
behavioral health system, and we are continuing to leverage that strength by
customizing treatment programs to maximize the value of the benefits our
customers offer their beneficiaries; driving improvement in clinical quality by
focusing on measurable outcomes; and expanding our continuum of care through the
addition of specialty care programs and out-patient services."
These transactions were unanimously approved by Magellan's and Crescent's
respective Boards of Directors, but are still subject to approval by Magellan's
stockholders and federal antitrust authorities and subject to customary closing
conditions including financing. Closing is expected to take place early in the
third quarter of fiscal year 1997.
Certain of the statements in this press release including, without limitation,
statements regarding acquisition opportunities, revenue growth, new product
development, and franchise operations constitute forward-looking statements
contemplated under the Private Securities Reform Act of 1995. Risk factors such
as the ability to successfully complete and integrate acquisitions, degree of
new product success, and profitability of franchised operations could cause
actual results to differ materially from those projected. For a brief discussion
of these factors, please see Exhibit 99 contained in the Company's Form 10K, as
amended, for the fiscal year ended September 30, 1996 filed with the Securities
and Exchange Commission on January 28, 1997.
Magellan Health Services, Inc., a Fortune 1000 company, is the country's largest
integrated behavioral healthcare company. Its three business units include:
Charter Behavioral Health Systems, the nation's largest and most comprehensive
behavioral healthcare delivery system, with nearly 100 facilities delivering a
broad continuum of inpatient and outpatient care; majority-owned Green Spring
Health Services, a leader in behavioral managed care services; and Magellan
Public Solutions, serving public sector agencies with privatized health
services.
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Investor Contact: Media Contact:
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(404) 814-5742 (212) 484-6701