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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: FEBRUARY 27, 1998
DATE OF EARLIEST EVENT
REPORTED: FEBRUARY 12, 1998
MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter).
DELAWARE 1-6639 58-1076737
(State of incorporation) (Commission File Number) (IRS Employer Identification
No.)
3414 PEACHTREE ROAD, N.E., SUITE 1400, ATLANTA, 30326
GEORGIA
(Address of principal executive offices) (Zip Code)
(404) 841-9200
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 12, 1998, a wholly-owned subsidiary of the Registrant (the
"Company" or "Magellan"), MBC Merger Corporation, merged with Merit Behavioral
Care Corporation ("Merit") whereby Merit became a wholly-owned subsidiary of the
Company.
The Company acquired all of the outstanding stock of Merit for approximately
$448.9 million in cash plus the repayment of long-term debt. The Company
refinanced its $375 million 11.25% Senior Subordinated Notes as part of the
Merit acquisition. The Company will account for the Merit acquisition using the
purchase method of accounting. Merit manages behavioral healthcare programs for
over 21 million covered lives across all segments of the healthcare industry,
including HMOs, Blue Cross/Blue Shield organizations and other insurance
companies, corporations and labor unions, federal, state and local government
agencies, and various state Medicaid programs.
In connection with the consummation of the Merit acquisition, the Company
consummated certain related transactions (together with the Merit acquisition,
collectively, the "Transactions"), as follows: (i) the Company terminated its
credit agreement; (ii) the Company repaid all loans outstanding pursuant to and
terminated Merit's existing credit agreement (the "Merit Existing Credit
Agreement"); (iii) the Company completed a tender offer for its 11 1/4% Series A
Senior Subordinated Notes due 2004 (the "Magellan Outstanding Notes"); (iv)
Merit completed a tender offer for its 11 1/2% Senior Subordinated Notes due
2005 (the "Merit Outstanding Notes"); (v) the Company entered into a new senior
secured bank credit agreement (the "New Credit Agreement") with The Chase
Manhattan Bank and a syndicate of financial institutions, providing for credit
facilities of up to $700 million; and (vi) the Company issued $625 million in 9%
Senior Subordinated Notes due 2008 (the "Notes").
The following table sets forth the sources and uses of funds for the
Transactions at closing (in thousands):
SOURCES:
Cash and cash equivalents...................................... $ 59,290
New Credit Agreement:
Revolving Facility (1)....................................... 20,000
Term Loan Facility........................................... 550,000
The Notes...................................................... 625,000
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Total sources................................................ $1,254,290
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USES:
Cash paid to Merit shareholders................................ $ 448,867
Repayment of Merit Existing Credit Agreement (2)............... 196,357
Purchase of Magellan Outstanding Notes (3)..................... 432,102
Purchase of Merit Outstanding Notes (4)........................ 121,651
Transaction costs (5).......................................... 55,313
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Total uses..................................................... $1,254,290
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(1) The Revolving Facility provides for borrowings of up to $150.0 million. The
Company had approximately $112.5 million available for borrowing pursuant to
the Revolving Facility after consummating the Transactions, excluding
approximately $17.5 million of availability reserved for certain letters of
credit.
(2) Includes principal amount of $193.6 million and accrued interest of $2.7
million.
(3) Includes principal amount of $375.0 million, tender premium of $43.4 million
and accrued interest of $13.7 million.
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(4) Includes principal amount of $100.0 million, tender premium of $18.9 million
and accrued interest of $2.8 million.
(5) Transaction costs include, among other things, expenses payable at closing
associated with the tender offers for the Magellan Outstanding Notes and the
Merit Outstanding Notes, the Notes, the Merit acquisition and the New Credit
Agreement.
The total consideration in the Merit acquisition was determined through
arm's length negotiations between representatives of Magellan and Merit. No
directors or officers of Magellan and its affiliates or Merit and its affiliates
had any material relationship prior to the Merit acquisition.
Magellan and its provider business affiliates and Merit and its behavioral
managed care affiliates transacted business in the ordinary course prior to the
Merit acquisition.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
FINANCIAL STATEMENTS
The Merit Financial Statements, together with the independent public
accountants' reports thereon, will be filed by amendment to this Form 8-K not
later than April 28, 1998.
PRO FORMA FINANCIAL INFORMATION
The Merit pro forma financial information will be filed by amendment to this
Form 8-K not later than April 28, 1998.
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EXHIBITS
2(a) Agreement and Plan of Merger, dated October 24, 1997, among the Company, Merit
Behavioral Care Corporation and MBC Merger Corporation, which was filed as Exhibit
2(g) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1997 and is incorporated herein by reference.
99(a) Press release, dated October 27, 1997.
99(b) Press release, dated February 12, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 27, 1998 Magellan Health Services, Inc.
By: /s/ CRAIG L. MCKNIGHT
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Executive Vice President and
Chief Financial Officer
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