Starboard Value Plans to Push for Changes at Magellan

(Bloomberg) -- Starboard Value, the activist fund run by Jeff Smith, has taken a stake in Magellan Health Inc. and plans to push the health care provider to improve its performance or explore a potential sale, according to people familiar with the matter.

The New York hedge fund said in a regulatory filing Thursday it had about a 9.8 percent stake in Magellan. Starboard believes Magellan could improve margins through better management of its health care segment, where the activist thinks several money-losing contracts have hurt profits, said the people, who asked not to be identified because the matter isn’t public.

A representative for Starboard declined to comment. A representative for Magellan couldn’t immediately be reached outside U.S. business hours.

With the health-care industry consolidating in recent years, Starboard believes there are several potential buyers for all or part of Magellan, the people said. CVS Health Corp. closed its acquisition of Aetna Inc. in November while UnitedHealth Group Inc. acquired Genoa Healthcare in September.

Shares of Magellan have fallen almost 40 percent this year through Wednesday’s close, after cutting its earnings guidance in November and missing out on a contract in Florida in April. The stock rose about 5 percent in New York trading Thursday to $61.49 at 9:56 a.m., giving the Avon, Connecticut-based company a market value of about $1.5 billion.

Magellan is kicking off a "multi-year margin improvement plan" to counter several headwinds in 2019, including contract terminations impacting about $660 million in revenue, Chief Executive Officer Barry Smith said in a statement this month.

Magellan offers health-care management services to health plans, managed-care organizations, labor unions, government agencies and other customers, according to its website.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Matthew Monks, Chitra Somayaji

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