February 20, 2019 / 4:16 PM / 7 months ago

Exclusive: Starboard target Magellan Health to explore potential sale - sources

(Reuters) - U.S. healthcare plan and pharmacy benefits manager Magellan Health Inc will explore selling itself after coming under pressure to do so from activist hedge fund Starboard Value LP, people familiar with the matter said on Wednesday.

Magellan is looking for ways to unlock value after its shares have dropped nearly 40 percent since April 2018, amid a wave of dealmaking in the healthcare space that has put pressure on margins. In response, the company has announced a multi-year “improvement plan” to boost its profitability.

Magellan, advised by investment bank Goldman Sachs Group Inc, is in the early stages of considering acquisition interest expressed in the company, the sources said, cautioning there is no certainty a deal will materialize.

The sources asked not to be identified because the matter is confidential. Magellan and Goldman Sachs did not immediately respond to requests for comment.

Magellan shares rose 8 percent to $70.20 on the news on Wednesday, giving the company a market capitalization of $1.7 billion.

Based in Scottsdale, Arizona, Magellan manages the care of patients with complex healthcare needs, their pharmacy benefits and other specialty areas of healthcare.

Starboard said in December it had a 9.8 percent stake in the company. It said Magellan shares were undervalued and represented “an attractive investment opportunity.”

Consolidation in the healthcare sector is putting pressure on smaller companies to seek scale. Last year, U.S. drugstore chain operator CVS Health Corp acquired U.S. health insurer Aetna Inc for $69 billion, while health insurer Cigna Corp acquired pharmacy benefits manager Express Scripts for $52 billion.

In a conference call with analysts in December, Magellan Health CEO Barry Smith said these deals were leading to dramatic changes in the company’s landscape. However, he argued that Magellan was using its independence as a selling point with clients who believe consolidation is giving some players too much pricing power in the healthcare market and is leading to conflicts.

“What we’re seeing and hearing is that we’re being invited to parties, to the table, in circumstances that we might not have historically, because the buyers of pharmacy want to have this level of independence,” Smith said.

Reporting by Carl O'Donnell and Greg Roumeliotis in New York; Editing by Phil Berlowitz

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