PREM14A 1 nt10019385x1_prem14a.htm PREM14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.  )
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:
☒ Preliminary Proxy Statement
☐ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☐ Definitive Proxy Statement
☐ Definitive Additional Materials
☐ Soliciting Material under §240.14a-12
MAGELLAN HEALTH, INC.
(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
 
Common Stock, $0.01 par value per share, of Magellan Health, Inc. (which we refer to as “Magellan common stock”)
 
(2)
Aggregate number of securities to which transaction applies:
 
 
25,981,484 shares of Magellan common stock, which consists of (a) 25,964,508 shares of Magellan common stock issued and outstanding as of January 31, 2021 and (b) 16,976 shares of Magellan common stock underlying outstanding restricted stock awards held by nonemployee directors of Magellan Health, Inc. as of January 31, 2021.
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
In accordance with Exchange Act Rule 0-11, the filing fee of $269,285.09 was determined by multiplying 0.00010910 by the proposed maximum aggregate value of the transaction. The proposed maximum aggregate value of the transaction was calculated as the sum of (a) 25,964,508 shares of Magellan common stock issued and outstanding multiplied by $95.00 per share and (b) 16,976 shares of Magellan common stock underlying outstanding restricted stock awards held by nonemployee directors of Magellan Health, Inc., multiplied by $95.00 per share.
 
(4)
Proposed maximum aggregate value of transaction:
 
 
$2,468,240,980
 
(5)
Total fee paid:
 
 
$269,285.09
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 

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PRELIMINARY PROXY STATEMENT DATED FEBRUARY 8, 2021 – SUBJECT TO COMPLETION

MAGELLAN HEALTH, INC.
4801 E. Washington Street
Phoenix, Arizona 85034
MagellanHealth.com
[•], 2021
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of Magellan Health, Inc., a Delaware corporation (which we refer to as “Magellan” or the “Company”). The special meeting will be held via live webcast on [•], 2021, at [•] a.m., Central Time. The special meeting can be accessed by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where you will be able to listen to the meeting live and vote online. Please note that you will not be able to attend the virtual special meeting in person. We have chosen to hold a virtual rather than an in-person meeting due to the continuing public health impact of coronavirus disease 2019 (COVID-19).
The purpose of the meeting is to consider and vote on proposals relating to the proposed acquisition of the Company by Centene Corporation, a Delaware corporation (which we refer to as “Centene”), for $95.00 per share of Magellan common stock in cash. Regardless of whether you plan to attend the special meeting, we encourage you to vote your shares by mail, by telephone or through the internet following the procedures outlined below.
On January 4, 2021, the Company entered into an Agreement and Plan of Merger (which, as it may be amended from time to time, we refer to as the “Merger Agreement”) with Centene and Mayflower Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Centene (which we refer to as “Merger Sub”). The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the acquisition of the Company by Centene at a price of $95.00 per share of Magellan common stock in cash. Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into the Company (which we refer to as the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Centene. At the special meeting, the Company will ask you and the other Magellan stockholders to adopt the Merger Agreement.
At the effective time of the Merger (which we refer to as the “Effective Time”), each share of Magellan common stock issued and outstanding immediately prior to the Effective Time (other than shares of Magellan common stock owned of record or beneficially owned by the Company (including as treasury stock), Centene or Merger Sub, any shares of Magellan common stock as to which appraisal rights have been properly demanded and not withdrawn under the General Corporation Law of the State of Delaware, and any shares of Magellan common stock underlying restricted stock awards of the Company, other than those held by nonemployee members of the board of directors of the Company) will be automatically cancelled and converted into the right to receive $95.00 per share in cash, without interest.
The proxy statement accompanying this letter provides you with more specific information concerning the special meeting, the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. We encourage you to carefully read the accompanying proxy statement and the Merger Agreement attached as Annex A to the proxy statement.
The board of directors of the Company (which we refer to as the “Board”) carefully reviewed and considered the terms and conditions of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. By a unanimous vote, the Board (i) approved and declared advisable the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement, (ii) determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and its stockholders, (iii) directed that the Merger Agreement be submitted to the stockholders of the Company for adoption and (iv) resolved to

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recommend that the stockholders of the Company adopt the Merger Agreement. Accordingly, the Board unanimously recommends a vote “FOR” the proposal to adopt the Merger Agreement.
Your vote is important. Whether or not you plan to attend the special meeting and regardless of the number of shares of Magellan common stock you own, your careful consideration of, and vote on, the proposal to adopt the Merger Agreement is important, and we encourage you to vote promptly. The Merger cannot be completed unless the Merger Agreement is adopted by stockholders holding a majority of the outstanding shares of Magellan common stock entitled to vote on such matter. The failure to vote will have the same effect as a vote AGAINSTthe proposal to adopt the Merger Agreement.
After reading the accompanying proxy statement, please make sure to vote your shares of Magellan common stock promptly (1) by completing, signing and dating the accompanying proxy card and returning it in the enclosed prepaid envelope, (2) by telephone or (3) through the internet by following the instructions on the accompanying proxy card. Instructions regarding all three methods of voting are provided on the proxy card. If you hold shares of Magellan common stock through an account with a bank, broker, trust or other nominee, please follow the instructions you receive from your bank, broker, trust or other nominee to vote your shares.
Your support of and interest in Magellan Health, Inc. is sincerely appreciated.
 
Kenneth J. Fasola
 
Chief Executive Officer
Neither the United States Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
The accompanying proxy statement is dated [•], 2021 and is first being mailed to Magellan stockholders on or about [•], 2021.

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PRELIMINARY PROXY STATEMENT DATED FEBRUARY 8, 2021 – SUBJECT TO COMPLETION
MAGELLAN HEALTH, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [•], 2021
To the Stockholders of Magellan Health, Inc.:
A special meeting of stockholders of Magellan Health, Inc., a Delaware corporation (which we refer to as “Magellan” or the “Company”), will be held via live webcast on [•], 2021, at [•] a.m., Central Time. The special meeting can be accessed by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where you will be able to listen to the meeting live and vote online. We encourage you to allow ample time for online check-in, which will open at [•] a.m., Central Time. Please note that you will not be able to attend the virtual special meeting in person. We are holding the special meeting for the following purposes:
1.
To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of January 4, 2021 (which, as it may be amended from time to time, we refer to as the “Merger Agreement”), by and among the Company, Centene Corporation, a Delaware corporation (which we refer to as “Centene”) and Mayflower Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Centene (which we refer to as “Merger Sub”);
2.
To consider and vote on a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the merger contemplated by the Merger Agreement (which we refer to as the “Merger”); and
3.
To consider and vote on a proposal to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the Merger Agreement if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.
Stockholders of record at the close of business on [•], 2021 are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof.
For more information concerning the special meeting, the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, please review the accompanying proxy statement and the copy of the Merger Agreement attached as Annex A to the proxy statement.
The board of directors of the Company (which we refer to as the “Board”) carefully reviewed and considered the terms and conditions of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. By a unanimous vote, the Board (i) approved and declared advisable the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement, (ii) determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and its stockholders, (iii) directed that the Merger Agreement be submitted to the stockholders of the Company for adoption and (iv) resolved to recommend that the stockholders of the Company adopt the Merger Agreement.
The Board unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the approval, by a non-binding advisory vote, of the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger and “FOR” the proposal to adjourn the special meeting if necessary or appropriate, including to solicit additional proxies.
To assure that your shares of Magellan common stock are represented at the special meeting, regardless of whether you plan to attend the special meeting, please fill in your vote, sign and mail the enclosed proxy card as soon as possible. We have enclosed a return envelope, which requires no postage if mailed in the United States.

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Alternatively, you may vote by telephone or through the internet. Instructions regarding each of the methods of voting are provided on the enclosed proxy card. If you are voting by telephone or through the internet, then your voting instructions must be received by 11:59 p.m., Eastern Time on [•], 2021. Your proxy is being solicited by the Board.
If you have any questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, MacKenzie Partners, Inc., toll-free at (800) 322-2885.
If you fail to return your proxy, vote by telephone or through the internet or attend the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.
 
By Order of the Board of Directors,
 
 
 
 
David Haddock
 
Secretary
[•], 2021
Phoenix, Arizona
Please Vote—Your Vote is Important

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SUMMARY TERM SHEET
This summary highlights certain information in this proxy statement but may not contain all of the information that may be important to you. You should carefully read the entire proxy statement and the attached Annexes and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the special meeting. In addition, this proxy statement incorporates by reference important business and financial information about Magellan Health, Inc. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions in the section entitled “Where You Can Find More Information.” Unless the context otherwise indicates, we refer to Magellan Health, Inc. as “Magellan,” the “Company,” “we,” “us” or “our.”
The Parties
Magellan
Magellan provides managed care services for some of the most complex areas of healthcare. Magellan offers innovative solutions that combine analytics, technology and clinical rigor to drive better decision making, positively impact members’ health outcomes and optimize the cost of care for the customers Magellan serves. Magellan provides services to health plans and other managed care organizations, employers, labor unions, various military and governmental agencies and third-party administrators. Magellan operates three segments: Healthcare, Pharmacy Management and Corporate. Magellan’s principal executive offices are located at 4801 E. Washington Street, Phoenix Arizona, and its telephone number is (800) 642-1716.
Centene
Centene Corporation, a Delaware corporation (which we refer to as “Centene”) is a leading multi-national healthcare enterprise that is committed to helping people live healthier lives. Centene takes a local approach – with local brands and local teams—to provide fully integrated, high-quality, and cost-effective services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. Centene offers affordable and high-quality products to nearly 1 in 15 individuals across the nation, including Medicaid and Medicare members (including Medicare Prescription Drug Plans) as well as individuals and families served by the Health Insurance Marketplace, the TRICARE program, and individuals in correctional facilities. Centene also serves several international markets, and contracts with other healthcare and commercial organizations to provide a variety of specialty services focused on treating the whole person. Centene focuses on long-term growth and the development of its people, systems and capabilities so that it can better serve its members, providers, local communities, and government partners. Centene’s principal executive offices are located at 7700 Forsyth Boulevard, St. Louis, Missouri 63105, and its telephone number is (314) 725-4477.
Merger Sub
Mayflower Merger Sub, Inc. (which we refer to as “Merger Sub”), a wholly owned subsidiary of Centene, is a Delaware corporation incorporated for the purpose of effecting the Merger (as defined below in the section entitled “The Merger”). Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement, including the preparation of applicable regulatory filings in connection with the Merger. The principal executive offices of Merger Sub are located at 7700 Forsyth Boulevard, St. Louis, Missouri 63105 and its telephone number is (314) 725-4477.
The Special Meeting (see page 21)
A special meeting of our stockholders will be held via live webcast on [•], 2021, at [•] a.m., Central Time. The special meeting can be accessed by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where you will be able to listen to the meeting live and vote online. Please note that you will not be able to attend the virtual special meeting in person. At the special meeting, you will be asked to, among other things, vote for the proposal to adopt the Merger Agreement (as defined below in the section entitled “The Merger”). See the section entitled “The Special Meeting,” beginning on page 21, for additional information on the special meeting, including how to vote your shares of Magellan common stock.
The Merger (see page 28)
On January 4, 2021, the Company, Centene and Merger Sub entered into an Agreement and Plan of Merger (which, as it may be amended from time to time, we refer to as the “Merger Agreement”). Under the terms of
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the Merger Agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into the Company (which we refer to as the “Merger”). The Company will survive the Merger as a wholly owned subsidiary of Centene (which we refer to as the “Surviving Corporation”).
At the effective time of the Merger (which we refer to as the “Effective Time”), each share of Magellan common stock, par value $0.01 per share issued and outstanding immediately prior to the Effective Time (other than shares of Magellan common stock owned of record or beneficially owned by the Company (including as treasury stock), Centene or Merger Sub, any shares of Magellan common stock as to which appraisal rights have been properly demanded and not withdrawn under the General Corporation Law of the State of Delaware (which we refer to as the “DGCL”), and any shares of Magellan common stock underlying restricted stock awards of the Company, other than those held by nonemployee members of the board of directors of the Company) (we refer to each such share as a “Converted Share” and, collectively, the “Converted Shares”) will be converted into the right to receive $95.00 per share in cash without interest (which we refer to as the “Merger Consideration”). At the Effective Time, each certificate formerly representing any of the Converted Shares and each Converted Share held in book-entry form will thereafter represent only the right to receive the Merger Consideration.
Following the completion of the Merger, Magellan will cease to be a publicly traded company.
Stockholders Entitled to Vote; Vote Required to Adopt the Merger Agreement (see pages 21 and 22)
You may vote at the special meeting if you were a holder of record of shares of Magellan common stock as of the close of business on [•], 2021, which is the record date for the special meeting (which we refer to as the “record date”). You will be entitled to one vote for each share of Magellan common stock that you owned on the record date. As of the record date, there were [•] shares of Magellan common stock issued and outstanding and entitled to vote at the special meeting. The adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Magellan common stock entitled to vote on such matter.
How to Vote (see page 23)
Stockholders of record have a choice of voting (i) by proxy by completing a proxy card and mailing it in the prepaid envelope provided, (ii) by calling a toll-free telephone number or through the internet or (iii) at the special meeting via the virtual meeting website. Please refer to your proxy card or the information forwarded by your bank, broker, trust or other nominee to see which options are available to you. Any stockholder can attend the special meeting by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where stockholders may vote during the meeting. The special meeting starts at [•] a.m., Central Time. Please have your 16-digit control number to join the special meeting. Instructions on who can attend and participate via internet, including how to demonstrate proof of stock ownership, are posted at www.proxyvote.com. The telephone and internet voting facilities for stockholders of record will close at 11:59 p.m., Eastern Time on [•], 2021.
If you wish to vote by proxy and your shares of Magellan common stock are held by a bank, broker, trust or other nominee, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee. Unless you give your bank, broker, trust or other nominee instructions on how to vote your shares of Magellan common stock, your bank, broker, trust or other nominee will not be able to vote your shares at the special meeting.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY CARD. A letter of transmittal with instructions for the surrender of certificates representing Converted Shares will be mailed to holders of record of certificates representing Converted Shares if the Merger is completed.
For additional information regarding the procedure for delivering your proxy, see the sections entitled “The Special Meeting—How to Vote,” beginning on page 23, and “The Special Meeting—Solicitation of Proxies,” beginning on page 24. If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, MacKenzie Partners, Inc. (which we refer to as “MacKenzie Partners”), toll-free at (800) 322-2885.
Recommendation of the Board; Reasons for Recommending the Adoption of the Merger Agreement (see page 42)
After careful consideration, Magellan’s board of directors (which we refer to as the “Board”) unanimously (i) approved and declared advisable the Merger Agreement and the consummation of the Merger and the other
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transactions contemplated by the Merger Agreement, (ii) determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and its stockholders, (iii) directed that the Merger Agreement be submitted to the stockholders of the Company for adoption and (iv) resolved to recommend that the stockholders of the Company adopt the Merger Agreement. Accordingly, the Board unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the approval, by a non-binding advisory vote, of the compensation that may be paid or become payable to Magellan’s named executive officers that is based on or otherwise relates to the Merger and “FOR” the proposal to adjourn the special meeting if necessary or appropriate, including to solicit additional proxies.
For a discussion of the material factors considered by the Board in reaching its conclusions, see the section entitled “The Merger—Reasons for Recommending the Adoption of the Merger Agreement,” beginning on page 42. In addition, in considering the recommendation of the Board with respect to the Merger Agreement, you should be aware that our directors and executive officers have interests that may be different from, or in addition to, the interests of Magellan stockholders generally. See the section entitled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page 64.
Merger Support Agreement (see page 95 and Annex B)
In connection with the execution of the Merger Agreement, on January 4, 2021, Centene and Merger Sub entered into a merger support agreement (which we refer to as the “Merger Support Agreement”) with Starboard Value LP and certain of its affiliates (which we refer to collectively as the “Starboard Parties”). As of January 4, 2021, the Starboard Parties beneficially owned approximately 9.16% of the outstanding shares of Magellan common stock.
The Merger Support Agreement generally requires, among other things, the Starboard Parties to vote or cause to be voted all of the shares of Magellan common stock beneficially owned by them in favor of the approval of the Merger, in favor of any proposal to adjourn a meeting of the Company stockholders to solicit additional proxies in favor of the adoption of the Merger Agreement, against any alternative acquisition proposal and against any action that could reasonably be expected to materially impede, interfere with, delay, postpone, discourage or adversely affect the consummation of the Merger or the performance by the Company of its obligations under the Merger Agreement.
In addition, under the Merger Support Agreement, the Starboard Parties have agreed not to transfer any shares of Magellan common stock they beneficially own or may acquire until the earlier of the termination of the Merger Support Agreement in accordance with its terms and the initial filing of the first definitive proxy statement in respect of a Company stockholder meeting in respect of the Merger. Each of the Starboard Parties have further agreed under the Merger Support Agreement not to solicit any alternative acquisition proposal or any inquiry, proposal or indication of interest with respect thereto.
Opinion of Goldman Sachs & Co. LLC (see page 48 and Annex C)
At a meeting of the Board on January 3, 2021, Goldman Sachs & Co. LLC (which we refer to as “Goldman Sachs”) rendered to the Board its oral opinion, subsequently confirmed in its written opinion dated January 4, 2021, to the effect that, as of the date of Goldman Sachs’ written opinion, and based upon and subject to the factors and assumptions set forth in Goldman Sachs’ written opinion, the $95.00 in cash per share of Magellan common stock to be paid to the holders (other than Centene and its affiliates) of the shares of Magellan common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated January 4, 2021, which sets forth the assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken in connection with Goldman Sachs’ opinion, is attached to this proxy statement as Annex C and is incorporated herein by reference. The summary of Goldman Sachs’ opinion contained in this proxy statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs’ advisory services and opinion were provided for the information and assistance of the Board in connection with its consideration of the Merger and the opinion does not constitute a recommendation as to how any holder of Magellan common stock should vote with respect to the Merger or any other matter.
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Pursuant to an engagement letter between the Company and Goldman Sachs, the Company has agreed to pay Goldman Sachs for its services in connection with the Merger an aggregate fee that is estimated, based on the information available as of the date of announcement, at approximately $13 million, all of which is contingent upon completion of the Merger.
For additional information, see the section entitled “The Merger—Opinion of Goldman Sachs & Co. LLC” beginning on page 48 and Annex C to this proxy statement.
Opinion of Guggenheim Securities, LLC (see page 55 and Annex D)
The Board retained Guggenheim Securities, LLC (which we refer to as “Guggenheim Securities”) as its financial advisor in connection with the potential sale of the Company. At a meeting of the Board on January 3, 2021, Guggenheim Securities rendered an oral opinion, which was subsequently confirmed by delivery of a written opinion, to the Board to the effect that, as of January 4, 2021 and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the Merger Consideration was fair, from a financial point of view, to the holders of shares of Magellan common stock. The full text of Guggenheim Securities' written opinion, dated as of January 4, 2021, which is attached as Annex D to this proxy statement and which you should read carefully and in its entirety, is subject to the assumptions, limitations, qualifications and other conditions contained in such opinion and is necessarily based on economic, business, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion. The description set forth below is qualified in its entirety by reference to the full text of the opinion.
Guggenheim Securities’ opinion was provided to the Board (in its capacity as such) for its information and assistance in connection with its evaluation of the Merger Consideration. Guggenheim Securities' opinion and any materials provided in connection therewith did not constitute a recommendation to the Board with respect to the Merger, nor does Guggenheim Securities’ opinion or the summary of its underlying financial analyses elsewhere in this proxy statement constitute advice or a recommendation to any holder of shares of Magellan common stock as to how to vote or act in connection with the Merger or otherwise. Guggenheim Securities’ opinion addressed only the fairness, from a financial point of view and as of the date of such opinion, of the Merger Consideration to the holders of shares of Magellan common stock to the extent expressly specified in such opinion and does not address any other term, aspect or implication of the Merger (including, without limitation, the form or structure of the Merger), the Merger Agreement or any voting and support agreement or any other agreement, transaction document or instrument contemplated by the Merger Agreement or to be entered into or amended in connection with the Merger.
Pursuant to an engagement letter between the Company and Guggenheim Securities, the Company has agreed to pay Guggenheim Securities for its services in connection with the Merger an aggregate fee that is estimated, based on the information available as of the date of announcement, at approximately $13 million, all of which is contingent upon completion of the Merger.
For a description of the opinion that the Board received from Guggenheim Securities, see “The Merger—Opinion of Guggenheim Securities, LLC” beginning on page 55 and Annex D of this proxy statement.
Market Price and Dividend Data (see page 100)
Magellan common stock is traded on the NASDAQ Global Market (which we refer to as “NASDAQ”) under the symbol “MGLN.” On December 31, 2020, the last full trading day prior to the execution and delivery of the Merger Agreement, the closing price for Magellan common stock was $82.84 per share. On [•], 2021, the last full trading day prior to the date of this proxy statement, the closing price for Magellan common stock was $[•] per share.
Certain Effects of the Merger (see page 70)
Upon completion of the Merger, Merger Sub will be merged with and into Magellan upon the terms set forth in the Merger Agreement. As the Surviving Corporation in the Merger, Magellan will continue to exist following the Merger as a wholly owned subsidiary of Centene.
Following the completion of the Merger, Magellan common stock will no longer be traded on the NASDAQ or any other public market. In addition, the registration of Magellan common stock under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”), will be terminated.
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Consequences if the Merger is Not Completed (see page 71)
If the proposal to adopt the Merger Agreement does not receive the required approval from Magellan’s stockholders, or if the Merger is not completed for any other reason, you will not receive any consideration from Centene or Merger Sub for your shares of Magellan common stock. Instead, Magellan will remain a public company, and Magellan common stock will continue to be listed and traded on the NASDAQ.
In addition, if the Merger Agreement is terminated under specified circumstances, Magellan is required to pay Centene a termination fee of $76,530,000 (which we refer to as the “termination fee”). For additional information, see the section entitled “The Merger Agreement—Termination Fees,” beginning on page 82.
Treatment of Outstanding Equity Awards; Company ESPP (see page 77)
The Merger Agreement provides that, as of the Effective Time:
each outstanding Company stock option (which we refer to as a “Company Option”) will be converted into an option to purchase shares of Centene common stock (which we refer to each as an “adjusted option”) with the same terms and conditions as were applicable to such Company Option immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company Option, multiplied by (ii) the quotient of the Merger Consideration divided by the volume weighted average of the sale prices per share of Centene common stock for the 30 full consecutive trading days ending on and including the business day prior to the closing of the Merger (which quotient we refer to as the “Stock Award Exchange Ratio”), with any fractional shares rounded down to the nearest whole share. The exercise price per share of Centene common stock subject to any adjusted option will be an amount equal to the quotient of (A) the exercise price per share of Magellan common stock subject to such Company Option immediately prior to the Effective Time, divided by (B) the Stock Award Exchange Ratio, with any fractional cents rounded up to the nearest whole cent. The exercise price per share of Centene common stock subject to any adjusted option and the number of shares of Centene common stock subject to any such adjusted option will be determined in a manner consistent with the requirements of Section 409A of Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), and, in the case of Company Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code, consistent with the requirements of Section 424 of the Code;
each outstanding Company performance-vested restricted stock unit (which we refer to as a “Company PSU”) will be converted into a restricted stock unit with the same terms and conditions as were applicable to such Company PSU immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy, but excluding the performance-based vesting conditions applicable to such Company PSU which will not apply from and after the Effective Time) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company PSU based on the achievement of the applicable performance metrics at the target level of performance, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share;
each outstanding Company restricted stock award, other than those granted to nonemployee members of the Board (which we refer to as a “Company RSA”) will be converted into a restricted share award with the same terms and conditions as were applicable to such Company RSA immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company RSA, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share;
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each outstanding Company restricted stock award granted to nonemployee members of the Board (which we refer to as a “Company Director RSA”) will be cancelled and converted into the right to receive the Merger Consideration for each share of Magellan common stock subject to such Company Director RSA, payable as soon as practicable after the Effective Time and in no event later than five (5) business days after the Effective Time;
each outstanding Company time-vested restricted stock unit (which we refer to as a “Company RSU”) will be converted into a restricted stock unit with the same terms and conditions as were applicable to such Company RSU immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company RSU, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share; and
each outstanding Company phantom cash unit (which we refer to as a “Company PCU”) will be converted into a phantom cash unit with the same terms and conditions as were applicable to such Company PCU immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company PCU, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share.
With respect to the Company’s 2014 Employee Stock Purchase Plan (which we refer to as the “Company ESPP”), in accordance with the terms of the Merger Agreement, the Company will take all actions reasonably required to provide that (i) the Offering Period (as defined in the Company ESPP) in effect as of the date of the Merger Agreement will be the final Offering Period and no further Offering Period will commence pursuant to the Company ESPP after the date of the Merger Agreement, and (ii) each individual participating in the final Offering Period will not be permitted to (1) increase his or her payroll contribution rate pursuant to the Company ESPP from the rate in effect when the final Offering Period commenced or (2) make separate non-payroll contributions to the Company ESPP on or following the date of the Merger Agreement. Prior to the Effective Time, the Company will take all reasonably necessary actions to (A) cause the final Offering Period, to the extent that it would otherwise be outstanding at the Effective Time, to be terminated no later than five (5) business days prior to the date on which the Effective Time occurs, (B) make any pro rata adjustments that may be necessary to reflect the final Offering Period, but otherwise treat the final Offering Period as a fully effective and completed Offering Period for all purposes pursuant to the Company ESPP and (C) cause the exercise (as of no later than five (5) business days prior to the date on which the Effective Time occurs) of each outstanding purchase right pursuant to the Company ESPP. On such exercise date, the Company will apply the funds credited as of such date pursuant to the Company ESPP within each participant’s payroll withholding account to the purchase of whole shares of Magellan common stock in accordance with the terms of the Company ESPP, and such shares of Magellan common stock will be entitled to the Merger Consideration. Immediately prior to and effective as of the Effective Time (but subject to the consummation of the Merger), the Company will terminate the Company ESPP.
Interests of Directors and Executive Officers in the Merger (see page 64)
In considering the recommendation of the Board that you vote “FOR” the proposal to adopt the Merger Agreement, you should be aware that our directors and executive officers have interests that may be different from, or in addition to, the interests of Magellan stockholders generally. The Board was aware of these interests and considered them at the time it approved the Merger Agreement and made its recommendation to Magellan stockholders.
Regulatory Approvals (see page 74)
Under the Merger Agreement, the respective obligations of Magellan, Centene and Merger Sub to complete the Merger are subject to, among other things, (i) the expiration or termination of the waiting period (and any extension thereof, including any agreement between a party to the Merger Agreement and a governmental authority agreeing not to consummate the Merger prior to a certain date) applicable to the completion of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (which we refer to as the “HSR Act”)
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(together, such expiration or termination we refer to as the “HSR Act Clearance”) and (ii) the making of and receipt of, respectively, certain other specified regulatory filings and consents, including the approval of certain state government insurance and health authorities for Centene’s acquisition of control of Magellan’s regulated businesses and subsidiaries (which we refer to as the “required filings” and “required consents”).
On January 8, 2021, Magellan and Centene filed their respective notification and report forms under the HSR Act with respect to the Merger with the Federal Trade Commission (which we refer to as the “FTC”) and Antitrust Division of the Department of Justice (which we refer to as the “DOJ”), which triggered the start of the HSR Act waiting period. On February 8, 2021, the date on which the waiting period was to expire, Centene voluntarily withdrew its notification and report form, as permitted by the HSR Act and the terms of the Merger Agreement. Centene will refile such form with the FTC and the DOJ no later than February 10, 2021. Unless the FTC and DOJ grant early termination of the HSR Act review period (subject to the FTC and DOJ’s lifting of the current suspension of review period early terminations) or the FTC or DOJ formally requests additional information concerning the Merger, the new waiting period will expire on March 12, 2021 (assuming a February 10, 2021 refiling date).
For a description of Magellan’s and Centene’s respective obligations under the Merger Agreement with respect to regulatory approvals, see the section entitled “The Merger Agreement—Change of Recommendation and Termination—Efforts to Complete the Merger,” beginning on page 89.
Conditions to the Merger (see page 79)
The obligations of Magellan, on the one hand, and each of Centene and Merger Sub, on the other hand, to complete the Merger are subject to the satisfaction (or waiver by Centene and Magellan, as applicable) of various conditions, including the following conditions:
adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Magellan common stock that are entitled to vote thereon at the special meeting (which we refer to as the “Company stockholder approval”);
no law or order, whether preliminary, temporary or permanent, being in effect that prevents, makes illegal or prohibits the Merger (which we refer to as a “legal restraint”);
the HSR Act Clearance, the required filings and the required consents having been made or obtained;
accuracy of the representations and warranties made in the Merger Agreement by the other party as set forth in the Merger Agreement, subject to certain materiality thresholds; and
performance or compliance in all material respects by the other party of all of the covenants and agreements required by the Merger Agreement to be performed or complied with by it at or prior to the closing.
In addition, the obligations of Centene and Merger Sub to complete the Merger are subject to the satisfaction (or waiver by Centene) at or prior to the closing of the following additional conditions:
Centene having received a certificate, dated as of the closing date and duly executed by an executive officer of the Company, certifying the satisfaction of certain conditions;
no burdensome condition (as defined in the section entitled “The Merger Agreement—Efforts to Complete the Merger”) being a condition to the receipt of the HSR Act Clearance or the required consents and none of the HSR Act Clearance, the required filings or the required consents containing, including or imposing any burdensome condition; and
the absence of a Company material adverse effect (see the section entitled “The Merger Agreement—Material Adverse Effect” for the definition of Company material adverse effect).
In addition, the obligation of Magellan to complete the Merger is subject to the satisfaction (or waiver by Magellan) at or prior to the closing of the following additional condition:
Magellan’s receipt of a certificate, dated as of the closing date and duly executed by an executive officer of Centene, certifying the satisfaction of certain conditions.
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Treatment of Existing Debt; Financing (see page 74)
The closing of the Merger is not conditioned upon Centene’s obtaining any financing.
In connection with the Merger, the parties intend to repay in full and terminate Magellan’s existing credit facility and effect the release or termination of any liens and guarantees, and the return of any possessory collateral, in connection with such repayment. In addition, Magellan will use its reasonable best efforts to deliver to Centene an executed waiver letter with respect to its continuing agreement for standby letters of credit that provides for the waiver of the change of control under such agreement and other defaults or events of default triggered by the transactions contemplated by the Merger Agreement.
If requested by Centene, Magellan has agreed to cause its representatives to use its and their commercially reasonable efforts to reasonably cooperate with Centene to, related to the Company’s 4.400% Senior Notes due 2024 and the related indentures, (i) commence any of (1) one or more offers to purchase any or all of the outstanding series of such notes for cash or (2) one or more offers to exchange any or all of the outstanding notes for securities issued by Centene or any of its subsidiaries and (ii) conduct consent solicitations to obtain from the requisite holders thereof consent to certain amendments to such indentures. Centene has agreed to pay the costs of any such offers to purchase, offers to exchange or consent solicitations. Centene has not yet determined what, if any, action it will take with respect to the notes.
No Solicitation (see page 86)
As more fully described in this proxy statement and in the Merger Agreement, Magellan has agreed to immediately cease any discussions or negotiations with any person that may have been ongoing prior to the date of the Merger Agreement with respect to an alternative acquisition proposal, as described hereinafter, and to terminate all physical and electronic data room access previously granted to any such person or its representatives. Magellan has agreed that it will not, and will cause each of its representatives not to:
solicit, initiate, knowingly facilitate or knowingly encourage (including by way of furnishing material non-public information), or take any other action designed to lead to, the submission by any person of an alternative acquisition proposal;
engage in, continue, knowingly facilitate, knowingly encourage or otherwise participate in any discussions or negotiations related to any alternative acquisition proposal (other than to clarify the terms of Magellan’s no-solicitation obligations under the Merger Agreement), or provide any material non-public information to any person in connection with, or related to, any alternative acquisition proposal;
approve, endorse or recommend any alternative acquisition proposal;
enter into any contract or similar document or commitment related to an alternative acquisition proposal; or
release or permit the release of any person from, waive or permit the waiver of any right under, fail to enforce any provision of, or grant any consent or make any election under, any “standstill” or similar provision of any confidentiality agreement to which Magellan or any of its subsidiaries is a party; except that, until receipt of the Company stockholder approval, Magellan will be permitted to waive any such “standstill” or similar provision that prohibits a confidential proposal being made to the Board (or any committee thereof), in each case, solely to the extent that the Board determines in good faith (after consultation with outside legal counsel) that the failure to make such waiver would be inconsistent with its fiduciary duties under applicable law and solely to the extent necessary to permit the person bound by such “standstill” or similar provision to make a confidential alternative acquisition proposal to the Board.
However, notwithstanding the foregoing, prior to obtaining the Company stockholder approval, if the Company receives a bona fide written alternative acquisition proposal made after the date of the Merger Agreement that does not result from a breach of the Company’s no-solicitation obligations under the Merger Agreement, and if the Board determines in good faith (after consultation with outside legal counsel and a nationally recognized financial advisor) that such alternative acquisition proposal is, or could reasonably be expected to lead to, a superior acquisition proposal, the Company is permitted to:
enter into a confidentiality agreement with the person making such alternative acquisition proposal that contains provisions no less favorable in the aggregate to the Company than those contained in the Amended
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Confidentiality Agreement (as defined below in the section entitled “The Merger—Background of the Merger”) (it being understood that such confidentiality agreement need not contain a standstill provision to the extent Centene is, concurrently with entry by the Company or any of its subsidiaries into such confidentiality agreement, released from any standstill provision in its confidentiality agreement with Magellan);
provide information (including nonpublic information), and access to the Company’s and its subsidiaries’ business, assets, books and records, contracts or employees, in response to a request therefor by such person, subject to the confidentiality agreement described in the immediately preceding bullet point; and
engage in discussion or negotiations for such alternative acquisition proposal with such person and its representatives.
For additional information, see the section entitled “The Merger Agreement—Covenants and Agreements—No Solicitation” beginning on page 86.
Termination of the Merger Agreement (see page 81)
The Merger Agreement may be terminated at any time prior to the Effective Time by the mutual written agreement of Centene and Magellan. The Merger Agreement may also be terminated by either Centene or Magellan if:
the closing has not occurred by 5:00 p.m. on the outside date of October 4, 2021 (which we refer to as the “outside date”), except that, if, as of 5:00 p.m., New York City time, on the outside date, all of the closing conditions described under “The Merger Agreement—Conditions to the Merger” have been satisfied or duly waived by all parties entitled to the benefit thereof except for (i) closing conditions regarding (a) the existence of a legal restraint that relates to the HSR Act Clearance or a required consent, or (b) the HSR Act Clearance, required filings or required consents having been made or obtained and (ii) any condition that by its nature is to be satisfied at the closing, the outside date will be extended to January 4, 2022, except that a party may not terminate the Merger Agreement as described in this bullet point if the failure of the closing to have occurred prior to 5:00 p.m. on the outside date (as it may be extended) was proximately caused by such party’s breach of, or such party’s failure to perform or comply with, in any material respect, any of its covenants or agreements under the Merger Agreement;
any legal restraint is in effect that has become final and nonappealable, except that a party may not terminate the Merger Agreement as described in this bullet point if the existence of such legal restraint was proximately caused by such party’s breach of, or such party’s failure to perform or comply with, in any material respect, any of its covenants or agreements under the Merger Agreement; or
the Company stockholder approval is not obtained at the special meeting or at any adjournment or postponement thereof at which a vote on the adoption of the Merger Agreement is taken.
Centene may also terminate the Merger Agreement at any time prior to the Effective Time if:
prior to receipt of the Company stockholder approval, the Board has made a change of its recommendation to stockholders to adopt the Merger Agreement;
the Company has committed a willful breach in any material respect of the no-solicitation provisions of the Merger Agreement in connection with an alternative acquisition proposal and such willful breach cannot be cured by the date of the special meeting or, if capable of being cured, is not cured within ten (10) business days after Centene delivers written notice of such breach to the Company; or
the Company breaches, or fails to perform or comply with, any of its covenants or agreements under the Merger Agreement, or any of the Company’s representations or warranties under the Merger Agreement fails to be accurate, which failure (1) would give rise to the failure of a closing condition regarding the accuracy of the Company’s representations and warranties or the Company’s compliance with its covenants and agreements and (2) is not reasonably capable of being cured by the Company or, if reasonably capable of being cured by the Company, is not cured by the Company prior to the earlier of (a) thirty (30) days after Centene delivers written notice of such failure to the Company and (b) the
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outside date (as it may be extended as described above), except that Centene may not terminate the Merger Agreement as described in this bullet point if Centene or Merger Sub breach, or fail to perform or comply with, in any material respect their respective covenants under the Merger Agreement or their respective representations or warranties fail to be accurate in any material respect, which failure proximately gave rise to the failure of the closing conditions described herein.
The Company may also terminate the Merger Agreement at any time prior to the Effective Time if:
(i) the Board has authorized the Company to terminate the Merger Agreement in response to a superior acquisition proposal in accordance with, and subject to the terms and conditions of, the provisions described under “The Merger Agreement—Covenants and Agreements—No Solicitation—Change of Recommendation and Termination,” (ii) Centene is not then entitled to terminate the Merger Agreement under the second bullet set forth under Centene’s termination rights above and (iii) concurrently with such termination, a written definitive agreement providing for the consummation of the transactions contemplated by such superior acquisition proposal is duly executed and delivered by the Company, the person making such superior acquisition proposal and all other parties thereto, except that the Company may not terminate the Merger Agreement as described in this bullet point, and no such purported termination will have any effect, unless the Company pays Centene the applicable termination fee described in the section entitled “The Merger Agreement—Termination Fees,” beginning on page 82; or
either Centene or Merger Sub breaches, or fails to perform or comply with, any of its covenants or agreements under the Merger Agreement, or any of Centene’s or Merger Sub’s respective representations or warranties under the Merger Agreement fails to be accurate, which failure (1) would give rise to the failure of a closing condition regarding the accuracy of Centene’s and Merger Sub’s representations and warranties or Centene’s and Merger Sub’s compliance with their respective covenants and agreements and (2) is not reasonably capable of being cured by Centene or Merger Sub or, if reasonably capable of being cured by Centene or Merger Sub, is not cured by Centene or Merger Sub, as applicable, prior to the earlier of (a) thirty (30) days after Company delivers written notice of such failure to Centene and (b) the outside date (as it may be extended as described above), except that the Company may not terminate the Merger Agreement as described in this bullet point if the Company breaches, or fails to perform or comply with, in any material respect its covenants under the Merger Agreement or its representations or warranties fail to be accurate in any material respect, which failure proximately gave rise to the failure of the closing conditions described herein.
Termination Fees (see page 82)
Upon termination of the Merger Agreement under specified circumstances, Magellan will be required to pay Centene a termination fee of $76,530,000. For additional information, see the section entitled “The Merger Agreement—Termination Fees,” beginning on page 82.
Appraisal Rights (see page 96)
Under Delaware law, if the Merger is completed, holders of Magellan common stock who do not vote in favor of the adoption of the Merger Agreement and who otherwise properly exercise their appraisal rights will be entitled to seek appraisal for, and obtain payment in cash for, the judicially determined fair value of, their shares of Magellan common stock, in lieu of receiving the Merger Consideration. The “fair value” could be higher or lower than, or the same as, the Merger Consideration. The relevant provisions of the DGCL are included as Annex E to this proxy statement. Magellan stockholders are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, Magellan stockholders who are considering exercising that right are encouraged to seek the advice of legal counsel. Failure to comply strictly with these provisions may result in the loss of the right of appraisal. For additional information, see the section entitled “Appraisal Rights” beginning on page 96.
Material U.S. Federal Income Tax Consequences of the Merger (see page 71)
For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined below in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) in exchange for such U.S. Holder’s shares of Magellan common stock in the Merger generally will result in the recognition of gain or
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loss in an amount measured by the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of Magellan common stock surrendered in the Merger.
A Non-U.S. Holder (as defined below in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) generally will not be subject to U.S. federal income tax with respect to the exchange of shares of Magellan common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States. For more information, see the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 71.
Stockholders should consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under U.S. federal non-income tax laws or the laws of any state, local or non-U.S. taxing jurisdiction. The U.S. federal, state, local and foreign income and other tax consequences to holders or beneficial owners of options or other equity awards participating in the Merger or other transactions in connection with the Merger with respect to such options or equity awards are not discussed herein, and such holders or beneficial owners of options are strongly encouraged to consult their own tax advisors regarding such tax consequences.
Additional Information (see page 106)
You can find more information about Magellan in the periodic reports and other information the Company files with the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). The information is available at the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to briefly address some commonly asked questions regarding the special meeting of stockholders and the Merger. These questions and answers do not address all questions that may be important to you as a Magellan stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the Annexes to this proxy statement and the documents referred to in this proxy statement.
Q:
Why am I receiving this proxy statement?
A:
On January 4, 2021, Magellan entered into the Merger Agreement with Centene and Merger Sub. You are receiving this proxy statement in connection with the solicitation of proxies by the Board in favor of the proposal to adopt the Merger Agreement.
Q:
As a stockholder, what will I receive in the Merger?
A:
If the Merger is completed, you will be entitled to receive $95.00 in cash, without interest, for each share of Magellan common stock you own as of immediately prior to the Effective Time. For further information, see the section entitled “The Merger Agreement—Merger Consideration Received by Magellan Stockholders,” beginning on page 76.
Q:
What are the material U.S. federal income tax consequences of the Merger?
A:
If you are a U.S. Holder (as such term is defined below in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”), the exchange of shares of Magellan common stock for cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes, which generally will require a U.S. Holder to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received by such U.S. Holder in the Merger and such U.S. Holder’s adjusted tax basis in the shares of Magellan common stock surrendered in the Merger.
A Non-U.S. Holder (as defined under the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) generally will not be subject to U.S. federal income tax with respect to the exchange of shares of Magellan common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States.
Because particular circumstances may differ, we recommend that you consult your own tax advisor to determine the U.S. federal income tax consequences relating to the Merger in light of your own particular circumstances (including with respect to any tax consequences to holders or beneficial owners of options or other equity awards participating in the Merger or transactions in connection with the Merger with respect to such options or equity awards) and any consequences arising under U.S. federal non-income tax laws or the laws of any state, local or foreign taxing jurisdiction. A more complete description of material U.S. federal income tax consequences of the Merger is provided below under the section of this proxy statement entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 71.
Q:
What will happen to outstanding Magellan equity compensation awards in the Merger?
A:
For information regarding the treatment of outstanding Magellan equity awards, see the section entitled “The Merger Agreement—Treatment of Outstanding Equity Awards; Company ESPP,” beginning on page 77.
Q:
What will happen to the Company ESPP?
A:
For information regarding the treatment of Company ESPP, see the section entitled “The Merger Agreement—Treatment of Outstanding Equity Awards; Company ESPP,” beginning on page 77.
Q:
When and where will the special meeting of stockholders be held?
A:
The special meeting of Magellan stockholders will be held via live webcast on [•], 2021, at [•] a.m., Central Time. The special meeting can be accessed by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where you will be able to listen to the meeting live and vote online. We encourage you to allow ample time for online check-in, which will open at [•] a.m., Central Time. Please note that you will not be able to attend the virtual special meeting in person.
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Q:
Who is entitled to vote at the special meeting?
A:
Only holders of record of Magellan common stock as of the close of business on [•], 2021, the record date for the special meeting, are entitled to notice of and to vote at the special meeting. You will be entitled to one vote on each of the proposals presented in this proxy statement for each share of Magellan common stock that you held as of the close of business on the record date.
Q:
What proposals will be considered at the special meeting?
A:
At the special meeting, you will be asked to consider and vote on:
a proposal to adopt the Merger Agreement;
a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to Magellan’s named executive officers that is based on or otherwise relates to the Merger, as discussed in the section entitled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page 64; and
a proposal to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the Merger Agreement if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.
Q:
What vote is required to approve each of the proposals?
A:
The proposal to adopt the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Magellan common stock entitled to vote thereon at the special meeting. Abstentions and failure to vote will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.
The approval of the non-binding Merger-related compensation proposal requires the affirmative vote of a majority of shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. Although the Board intends to consider the vote resulting from this proposal, the vote is advisory only and, therefore, is not binding on Magellan or Centene or any of their respective subsidiaries, and, if the Merger Agreement is adopted by Magellan stockholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be payable to our named executive officers even if this proposal is not approved. Failure to vote will have no effect on approval of the proposal; however, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.
The approval of the proposal to adjourn the special meeting if necessary or appropriate requires the affirmative vote of a majority of shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. In addition, even if a quorum is not present at the special meeting, the affirmative vote of shares representing a majority of the shares of Magellan common stock present, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter may adjourn the special meeting to a later date and time. Failure to vote will have no effect on approval of the proposal; however, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.
Q:
How does the Board recommend that I vote on the proposals?
A:
After careful consideration, the Board has unanimously approved and declared advisable the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement, determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and its stockholders, directed that the Merger Agreement be submitted to the stockholders of the Company for adoption, and unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the non-binding Merger-related compensation proposal and “FOR” the proposal to adjourn the special meeting if necessary or appropriate.
For a discussion of the factors that the Board considered in determining to recommend the adoption of the Merger Agreement, see the section entitled “The Merger—Reasons for Recommending the Adoption of the
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Merger Agreement,” beginning on page 42. In addition, in considering the recommendation of the Board with respect to the Merger, you should be aware that our directors and executive officers have interests that may be different from, or in addition to, the interests of Magellan stockholders generally. See the section entitled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page 64.
Q:
Do I need to attend the special meeting?
A:
No. It is not necessary for you to attend the special meeting in order to vote your shares. If you are a stockholder of record as of the record date, you may vote by mail, by telephone or through the internet, as described in more detail below. If you are a “street name” holder of shares, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee for your shares to be voted at the special meeting, as described in more detail below.
Q:
How many shares of Magellan common stock need to be represented at the special meeting?
A:
The presence at the special meeting, by attendance via the virtual meeting website or by proxy, of the holders of shares of Magellan common stock representing a majority of the votes which all holders of shares of Magellan common stock are entitled to cast constitutes a quorum for the purpose of considering the proposals. As of [•], 2021, there were [•] shares of Magellan common stock outstanding. If you are a Magellan stockholder as of the close of business on the record date and you vote by mail, by telephone, through the internet or at the special meeting via the virtual meeting website, you will be considered part of the quorum. If you are a “street name” holder of shares of Magellan common stock and you provide your bank, broker, trust or other nominee with voting instructions, then your shares will be counted in determining the presence of a quorum. If you are a “street name” holder of shares of Magellan common stock and you do not provide your bank, broker, trust or other nominee with voting instructions, then your shares will not be counted in determining the presence of a quorum.
All shares of Magellan common stock held by stockholders that attend the special meeting via the virtual meeting website, or are represented by proxy, and entitled to vote at the special meeting, regardless of how such shares are voted or whether such stockholders have indicated on their proxy that they are abstaining from voting, will be counted in determining the presence of a quorum. In the absence of a quorum, the special meeting may be adjourned.
Q:
Why am I being asked to consider and cast a non-binding advisory vote to approve the compensation that may be paid or become payable to Magellan’s named executive officers that is based on or otherwise relates to the Merger?
A:
In July 2010, the SEC adopted rules that require companies to seek a non-binding advisory vote to approve certain compensation that may be paid or become payable to their named executive officers that is based on or otherwise relates to corporate transactions such as the Merger. In accordance with the rules promulgated under Section 14A of the Exchange Act, Magellan is providing its stockholders with the opportunity to cast a non-binding advisory vote on compensation that may be paid or become payable to Magellan’s named executive officers in connection with the Merger. For additional information, see the section entitled “Proposal 2: Non-Binding Merger-Related Compensation Proposal,” beginning on page 26.
Q:
What will happen if Magellan stockholders do not approve the non-binding Merger-related compensation proposal?
A:
The vote to approve the non-binding Merger-related compensation proposal is a vote separate and apart from the vote to adopt the Merger Agreement. Approval of the non-binding Merger-related compensation proposal is not a condition to completion of the Merger, and it is advisory in nature only, meaning that it will not be binding on Magellan or Centene or any of their respective subsidiaries. Accordingly, if the Merger Agreement is adopted by Magellan’s stockholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be payable to our named executive officers even if this proposal is not approved.
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Q:
What do I need to do now?
A:
After carefully reading and considering the information contained in this proxy statement and the Annexes attached to this proxy statement, please vote your shares of Magellan common stock in one of the ways described below as soon as possible. You will be entitled to one vote for each share of Magellan common stock that you owned on the record date.
Q:
How do I vote if I am a stockholder of record?
A:
You may vote by:
submitting your proxy by completing, signing and dating each proxy card you receive and returning it by mail in the enclosed prepaid envelope;
submitting your proxy by using the telephone number printed on each proxy card you receive;
submitting your proxy through the internet voting instructions printed on each proxy card you receive; or
casting your vote at the special meeting via the virtual meeting website. Any stockholder can attend the special meeting by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where stockholders will be able to listen to the meeting live and vote online. The special meeting starts at [•], a.m. Central Time. We encourage you to allow ample time for online check-in, which will open at [•] a.m., Central Time. Please have your 16-digit control number to join the special meeting. Instructions on who can attend and participate via internet, including how to demonstrate proof of stock ownership, are posted at www.proxyvote.com.
If you are submitting your proxy by telephone or through the internet, your voting instructions must be received by 11:59 p.m., Eastern Time on [•], 2021.
If your shares of Magellan common stock are purchased through the Company ESPP and are held through your account with Computershare Trust Company, N.A., you must vote such shares by 11:59 p.m. Eastern Time on [•], 2021.
Submitting your proxy by mail, by telephone or through the internet will not prevent you from casting your vote at the special meeting via the virtual meeting website. You are encouraged to submit a proxy by mail, by telephone or through the internet even if you plan to attend the special meeting via the virtual meeting website to ensure that your shares of Magellan common stock are represented at the special meeting.
If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the proposal to adopt the Merger Agreement, “FOR” the approval of the non-binding Merger-related compensation proposal and “FOR” the approval of the proposal to adjourn the special meeting if necessary or appropriate.
Q:
If my shares are held for me by a bank, broker, trust or other nominee, will my bank, broker, trust or other nominee vote those shares for me with respect to the proposals?
A:
Your bank, broker, trust or other nominee will NOT have the power to vote your shares of Magellan common stock at the special meeting unless you provide instructions to your bank, broker, trust or other nominee on how to vote. You should instruct your bank, broker, trust or other nominee on how to vote your shares with respect to the proposals, using the instructions provided by your bank, broker, trust or other nominee. You may be able to vote by telephone or through the internet if your bank, broker, trust or other nominee offers these options.
Q:
What if I fail to instruct my bank, broker, trust or other nominee how to vote?
A:
Your bank, broker, trust or other nominee will NOT be able to vote your shares of Magellan common stock unless you have properly instructed your bank, broker, trust or other nominee on how to vote. Because the proposal to adopt the Merger Agreement requires the affirmative vote of holders of a majority of the outstanding shares of Magellan common stock, the failure to provide your nominee with voting instructions will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. Furthermore, your shares of Magellan common stock will not be included in the calculation of the number of shares present at the special meeting for purposes of determining whether a quorum is present.
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Q:
May I change my vote after I have mailed my proxy card or after I have submitted my proxy by telephone or through the internet?
A:
Yes. You may revoke your proxy or change your vote at any time before it is voted at the special meeting. You may revoke your proxy by delivering a signed written notice of revocation stating that the proxy is revoked and bearing a date later than the date of the proxy delivered to David Haddock, Secretary, Magellan Health, Inc., 4801 E. Washington Street, Phoenix, Arizona 85034. You may also revoke your proxy or change your vote by submitting another proxy by telephone or through the internet in accordance with the instructions on the enclosed proxy card. You may also submit a later-dated proxy card relating to the same shares. If you voted by completing, signing, dating and returning the enclosed proxy card, you should retain a copy of the voter control number found on the proxy card in the event that you later decide to revoke your proxy or change your vote by telephone or through the internet. Alternatively, your proxy may be revoked or changed by attending the special meeting via the virtual meeting website and voting at the meeting. However, simply attending the special meeting without voting will not revoke or change your proxy. “Street name” holders of shares of Magellan common stock should contact their bank, broker, trust or other nominee to obtain instructions as to how to revoke or change their proxies.
If you have instructed a bank, broker, trust or other nominee to vote your shares of Magellan common stock, you must follow the instructions received from your bank, broker, trust or other nominee to change your vote.
All properly submitted proxies received by us before the special meeting that are not revoked or changed prior to being exercised at the special meeting will be voted at the special meeting in accordance with the instructions indicated on the proxies or, if no instructions were provided, “FOR” each of the proposals.
Q:
What does it mean if I receive more than one proxy card?
A:
If you receive more than one proxy card, it means that you hold shares of Magellan common stock that are registered in more than one account. For example, if you own your shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and you will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Therefore, to ensure that all of your shares of Magellan common stock are voted, you will need to submit your proxies by mailing in each proxy card you receive or by telephone or through the internet by using the different voter control number(s) on each proxy card.
Q:
What is householding and how does it affect me?
A:
The SEC permits companies to send a single set of certain disclosure documents to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. If your family has multiple accounts holding shares of Magellan common stock, you may have already received a householding notification. For additional information, see the section entitled “Householding of Proxy Material,” beginning on page 105.
Q:
What happens if I sell my shares of Magellan common stock before the special meeting?
A:
The record date for the special meeting is earlier than the expected date of completion of the Merger. If you own shares of Magellan common stock as of the close of business on the record date but transfer your shares prior to the special meeting, you will retain your right to vote at the special meeting, but the right to receive the Merger Consideration will pass to the person who holds your shares as of immediately prior to the Effective Time.
Q:
May I exercise dissenters’ rights or rights of appraisal in connection with the Merger?
A:
Yes. In order to exercise your appraisal rights, you must follow the requirements set forth in Section 262 of the DGCL. Under Delaware law, holders of record of shares of Magellan common stock who do not vote in favor of adopting the Merger Agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the Merger is completed. Appraisal rights only will be
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available to these holders if they deliver a written demand for an appraisal to Magellan prior to the vote on the proposal to adopt the Merger Agreement at the special meeting and they comply with the procedures and requirements set forth in Section 262 of the DGCL, which are summarized in this proxy statement. The appraisal amount could be more than, the same as or less than the amount a stockholder would be entitled to receive under the terms of the Merger Agreement. A copy of Section 262 of the DGCL is included as Annex E to this proxy statement. For additional information, see the section entitled “Appraisal Rights,” beginning on page 96.
Q:
If I hold my shares of Magellan common stock in certificated form, should I send in my stock certificates now?
A:
No. Shortly after the Merger is completed, you will be sent a letter of transmittal that includes detailed written instructions on how to return your stock certificates. You must return your stock certificates in accordance with such instructions in order to receive the Merger Consideration. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATE(S) NOW.
Q:
Should I send in my Company Options, Company PSUs, Company RSAs, Company Director RSAs, Company RSUs and Company PCU awards?
A:
No. Shortly after the Merger is completed, your Company Options, Company PSUs, Company RSAs, Company Director RSAs, Company RSUs and Company PCUs will be automatically exchanged.
Q:
When is the Merger expected to be completed?
A:
We and Centene are working toward completing the Merger as quickly as possible. We currently anticipate that the Merger will be completed during the second half of 2021, but we cannot be certain when or if the conditions to the Merger will be satisfied or, to the extent permitted, waived. The Merger cannot be completed until the conditions to closing are satisfied (or, to the extent permitted, waived), including the adoption of the Merger Agreement by Magellan stockholders. For additional information, see the section entitled “The Merger Agreement—Conditions to the Merger,” beginning on page 79.
Q:
What happens if the Merger is not completed?
A:
If the proposal to adopt the Merger Agreement is not approved by the holders of a majority of the outstanding shares of Magellan common stock entitled to vote on the matter or if the Merger is not completed for any other reason, you will not receive any consideration from Centene or Merger Sub for your shares of Magellan common stock. Instead, Magellan will remain a public company, and Magellan common stock will continue to be registered under the Exchange Act and listed and traded on the NASDAQ. We expect that our management will operate our business in a manner similar to that in which it is being operated today and that holders of shares of Magellan common stock will continue to be subject to the same risks and opportunities to which they are currently subject with respect to their ownership of Magellan common stock. Under certain circumstances, if the Merger is not completed, we may be obligated to pay Centene a termination fee. For additional information, see the section entitled “The Merger—Consequences if the Merger is Not Completed,” beginning on page 71.
Q:
Are there any requirements if I plan on attending the special meeting?
A:
The special meeting will be held via live webcast only. Any stockholder can attend the special meeting by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where stockholders will be able to listen to the meeting live and vote online. The special meeting starts at [•] a.m., Central Time, on [•], 2021. We encourage you to allow ample time for online check-in, which will open at [•], a.m., Central Time. If you are a stockholder of record of shares of Magellan common stock, in order to be able to enter the special meeting you will need the 16-digit control number included on your proxy card. If you hold your shares in “street name,” in order to be able to enter the special meeting you will need the 16-digit control number included with your voting instruction card and voting instructions you received from your broker, bank or other nominee of your shares. Instructions on how to attend and participate online are also posted online at www.proxyvote.com.
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Q:
Where can I find more information about Magellan?
A:
Magellan files periodic reports, proxy statements and other information with the SEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov. For a more detailed description of the information available, see the section entitled “Where You Can Find More Information,” beginning on page 106.
Q:
Who can help answer my questions?
A:
For additional questions about the Merger, assistance in submitting proxies or voting shares of Magellan common stock, or additional copies of this proxy statement or the enclosed proxy card, please contact our proxy solicitor:
MacKenzie Partners, Inc.
Stockholders and Banks and Brokers may call toll-free: (800) 322-2885
If your shares are held for you by a bank, broker, trust or other nominee, you should also call your bank, broker, trust or other nominee for additional information.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this proxy statement constitutes “forward-looking statements.” Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks,” “targets” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “would,” “aims,” “intends” or “projects.” However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. We caution that forward-looking statements are qualified by the existence of certain risks and uncertainties that could cause actual results and events to differ materially from what is contemplated by the forward-looking statements. Factors that could cause our actual results to differ materially from these forward-looking statements may include, without limitation:
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;
the closing conditions of the Merger may not be satisfied in a timely manner or at all, including due to the failure to obtain the Company stockholder approval and required regulatory approvals;
the announcement and pendency of the proposed merger may disrupt the Company’s business operations (including the threatened or actual loss of employees, customers or suppliers);
the Company could experience financial or other setbacks if the transaction encounters unanticipated problems;
the effectiveness of business continuity plans during the COVID-19 pandemic;
the possible election of certain of the Company’s customers to manage the healthcare services of their members directly;
changes in rates paid to and/or by the Company by customers and/or providers;
higher utilization of healthcare services by the Company’s members;
risks and uncertainties associated with the pharmacy benefits management industry;
delays, higher costs or inability to implement new business or other initiatives;
the impact of changes in the contracting model for Medicaid contracts;
termination or non-renewal of customer contracts;
the impact of new or amended laws or regulations;
governmental inquiries;
litigation;
competition;
operational issues;
healthcare reform;
general business conditions; and
the other factors discussed in the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q and other filings we make with the SEC.
The foregoing list of factors should not be construed as exhaustive. Magellan can give no assurance that the expectations expressed or implied in the forward-looking statements contained herein will be attained. The statements made in this proxy statement are current as of the date of this proxy statement only. Magellan undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.
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PARTIES TO THE MERGER
Magellan
Magellan provides managed care services for some of the most complex areas of healthcare. Magellan offers innovative solutions that combine analytics, technology and clinical rigor to drive better decision making, positively impact members’ health outcomes and optimize the cost of care for the customers Magellan serves. Magellan provides services to health plans and other managed care organizations, employers, labor unions, various military and governmental agencies and third-party administrators. Magellan operates three segments: Healthcare, Pharmacy Management and Corporate. Magellan’s principal executive offices are located at 4801 E. Washington Street, Phoenix Arizona, and its telephone number is (800) 642-1716.
Magellan became a publicly traded company in 1970. Shares of Magellan common stock are listed on the NASDAQ and trade under the symbol “MGLN.
Our website address is www.magellanhealth.com. The information provided on our website is not part of this proxy statement and is not incorporated by reference in this proxy statement by this or any other reference to our website in this proxy statement.
Additional information about Magellan is contained in our public filings, which are incorporated by reference in this proxy statement. See the section entitled “Where You Can Find More Information,” beginning on page 106, for more information.
Centene
Centene is a leading multi-national healthcare enterprise that is committed to helping people live healthier lives. Centene takes a local approach – with local brands and local teams – to provide fully integrated, high-quality, and cost-effective services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. Centene offers affordable and high-quality products to nearly 1 in 15 individuals across the nation, including Medicaid and Medicare members (including Medicare Prescription Drug Plans) as well as individuals and families served by the Health Insurance Marketplace, the TRICARE program, and individuals in correctional facilities. Centene also serves several international markets, and contracts with other healthcare and commercial organizations to provide a variety of specialty services focused on treating the whole person. Centene focuses on long-term growth and the development of its people, systems and capabilities so that it can better serve its members, providers, local communities, and government partners. Centene combines its decentralized local approach for care with a centralized infrastructure of support functions such as finance, information systems and claims processing. Centene’s principal executive offices are located at 7700 Forsyth Boulevard, St. Louis, Missouri 63105, and its telephone number is (314) 725-4477.
Shares of Centene’s common stock are listed on the New York Stock Exchange and trade under the symbol “CNC.
Centene’s website address is www.centene.com. The information provided on Centene’s website is not part of this proxy statement and is not incorporated by reference in this proxy statement.
Merger Sub
Merger Sub, a wholly owned subsidiary of Centene, is a Delaware corporation incorporated for the purpose of effecting the Merger. Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement, including the preparation of applicable regulatory filings in connection with the Merger. The principal executive offices of Merger Sub are located at 7700 Forsyth Boulevard, St. Louis, Missouri 63105 and its telephone number is (314) 725-4477.
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THE SPECIAL MEETING
We are furnishing this proxy statement as part of the solicitation of proxies by the Board for use at the special meeting and at any properly convened meeting following an adjournment or postponement of the special meeting.
Date, Time and Place of the Special Meeting
Magellan will hold the special meeting via live webcast on [•], 2021, at [•], a.m., Central Time. The special meeting can be accessed by visiting www.virtualshareholdermeeting.com/MGLN2021SM, where you will be able to listen to the meeting live and vote online. We encourage you to allow ample time for online check-in, which will open at [•], a.m., Central Time. Please note that you will not be able to attend the virtual special meeting in person.
Purpose of the Special Meeting
At the special meeting, Magellan’s stockholders of record will be asked to consider and vote on:
A proposal to adopt the Merger Agreement, pursuant to which, subject to the satisfaction or waiver of certain specified conditions, Merger Sub will merge with and into Magellan, with Magellan continuing as the Surviving Corporation;
A proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to Magellan’s named executive officers that is based on or otherwise relates to the Merger, as discussed in the section entitled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page 64; and
A proposal to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the Merger Agreement if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.
Recommendation of the Board
The Board carefully reviewed and considered the terms and conditions of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. By a unanimous vote, the Board (i) approved and declared advisable the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement, (ii) determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and its stockholders, (iii) directed that the Merger Agreement be submitted to the stockholders of the Company for adoption and (iv) resolved to recommend that the stockholders of the Company adopt the Merger Agreement. Accordingly, the Board unanimously recommends a vote “FOR” the proposal to adopt the Merger Agreement.
The Board also unanimously recommends a vote “FOR” the non-binding Merger-related compensation proposal and “FOR” the approval of the proposal to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the Merger Agreement if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.
Record Date and Quorum
Each holder of record of shares of Magellan common stock as of the close of business on [•], 2021, which is the record date for the special meeting, is entitled to receive notice of, and to vote at, the special meeting. You will be entitled to one vote for each share of Magellan common stock that you owned on the record date. As of [•], 2021, there were [•] shares of Magellan common stock issued and outstanding and entitled to vote at the special meeting. The presence at the special meeting, by attendance via the virtual meeting website or by proxy, of the holders of shares of Magellan common stock representing a majority of the votes which all holders of shares of Magellan common stock are entitled to cast constitutes a quorum for the special meeting.
If you are a Magellan stockholder of record and you vote by mail, by telephone or through the internet or at the special meeting via the virtual meeting website, then your shares of Magellan common stock will be counted as part of the quorum. If you are a “street name” holder of shares of Magellan common stock and you provide
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your bank, broker, trust or other nominee with voting instructions, then your shares will be counted in determining the presence of a quorum. If you are a “street name” holder of shares of Magellan common stock and you do not provide your bank, broker, trust or other nominee with voting instructions, then your shares will not be counted in determining the presence of a quorum.
All shares of Magellan common stock held by stockholders of record that are present at the special meeting via the virtual meeting website or represented by proxy and entitled to vote at the special meeting, regardless of how such shares are voted or whether such stockholders abstain from voting, will be counted in determining the presence of a quorum. In the absence of a quorum, the special meeting may be adjourned.
Vote Required for Approval
Merger Agreement Proposal. The proposal to adopt the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Magellan common stock entitled to vote on such matter.
Non-Binding Merger-Related Compensation Proposal. The approval of the non-binding Merger-related compensation proposal requires, assuming a quorum is present, the affirmative vote of a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. The vote is advisory only and, therefore, is not binding on Magellan or Centene or any of their respective subsidiaries, and, if the Merger is approved by Magellan stockholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be payable to our named executive officers even if this proposal is not approved.
Adjournment Proposal. The approval of the proposal to adjourn the special meeting if necessary or appropriate requires the affirmative vote of a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. In addition, even if a quorum is not present at the special meeting, the affirmative vote of shares representing a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter may adjourn the special meeting to a later date and time.
Effect of Abstentions; Broker Non-Votes
The proposal to adopt the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Magellan common stock entitled to vote on such matter. Therefore, the failure to vote or the abstention from voting will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.
The approval of the non-binding Merger-related compensation proposal requires the affirmative vote of a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. Consequently, failure to vote will have no effect on approval of the proposal. However, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.
The proposal to adjourn the special meeting if necessary or appropriate requires the affirmative vote of a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. Consequently, failure to vote will have no effect on approval of the proposal; however, the abstention from voting will have the same effect as a vote “AGAINST” the proposal. In addition, even if a quorum is not present at the special meeting, the affirmative vote of shares representing a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter may adjourn the special meeting to a later date and time.
A broker non-vote with respect to Magellan common stock occurs when (i) shares of Magellan common stock held by a broker or other nominee are represented, in person or by proxy, at a meeting of Magellan stockholders, (ii) the bank, broker or other nominee has not received voting instructions from the beneficial owner on a particular proposal and (iii) the bank, broker or other nominee does not have the discretion to direct the voting of the shares of Magellan common stock on a particular proposal but has discretionary voting power on other proposals. A bank, broker, trust or other nominee may exercise discretion in voting on routine matters but may not exercise discretion and therefore will not vote on non-routine matters if instructions are not given.
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Under applicable stock exchange rules, all of the proposals in this proxy statement are non-routine matters. As a result, there will not be any broker non-votes at the special meeting.
Accordingly, if your shares of Magellan common stock are held in “street name,” a bank, broker, trust or other nominee will NOT be able to vote your shares, and your shares will not be counted in determining the presence of a quorum unless you have properly instructed your bank, broker, trust or other nominee on how to vote. Because the proposal to adopt the Merger Agreement requires the affirmative vote of a majority of the outstanding shares of Magellan common stock, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. Because the approval of each of (1) the non-binding Merger-related compensation proposal and (2) the proposal to adjourn the special meeting if necessary or appropriate requires the affirmative vote of shares representing a majority of the shares present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter, and because your bank, broker, trust or other nominee does not have discretionary authority to vote on either proposal, the failure to provide your bank, broker, trust or other nominee with voting instructions will have no effect on approval of those proposals.
How to Vote
Stockholders have a choice of voting by proxy by completing a proxy card and mailing it in the prepaid envelope provided, by calling a toll-free telephone number or through the internet. Please refer to your proxy card or the information forwarded by your bank, broker, trust or other nominee to see which options are available to you. The telephone and internet voting facilities for stockholders of record will close at 11:59 p.m., Eastern Time on [•], 2021.
If your shares of Magellan common stock are purchased through the Company ESPP and are held through your account with Computershare Trust Company, N.A., you must vote such shares by 11:59 p.m. Eastern Time on [•], 2021.
If you submit your proxy by mail, by telephone or through the internet voting procedures, but do not include “FOR,” “AGAINST” or “ABSTAIN” on a proposal to be voted, your shares will be voted in favor of that proposal. If you indicate “ABSTAIN” on a proposal to be voted, it will have the same effect as a vote “AGAINST” that proposal. If you wish to vote by proxy and your shares are held by a bank, broker, trust or other nominee, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee. Unless you give your bank, broker, trust or other nominee instructions on how to vote your shares of Magellan common stock, your bank, broker, trust or other nominee will not be able to vote your shares on the proposals.
If you wish to vote by attending the special meeting via the virtual meeting website and your shares are held in the name of a bank, broker or other holder of record, you must obtain a legal proxy, executed in your favor, from the bank, broker or other holder of record authorizing you to vote at the special meeting. Obtaining a legal proxy may take several days.
If you do not submit a proxy or otherwise vote your shares of Magellan common stock in any of the ways described above, it will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement, but will have no effect on the approval of the non-binding Merger-related compensation proposal or the approval of the proposal to adjourn the special meeting if necessary or appropriate.
If you have any questions about how to vote or direct a vote in respect of your shares of Magellan common stock, you may contact our proxy solicitor, MacKenzie Partners, toll-free at (800) 322-2885.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY CARD. A letter of transmittal with instructions for the surrender of certificates representing Converted Shares will be mailed to holders of record of certificates representing Converted Shares if the Merger is completed.
Revocation of Proxies
Any proxy given by a Magellan stockholder may be revoked at any time before it is voted at the special meeting by doing any of the following:
by submitting another proxy by telephone or through the internet, in accordance with the instructions on the proxy card;
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by delivering a signed written notice of revocation bearing a date later than the date of the proxy to David Haddock, Secretary, Magellan Health, Inc., 4801 E. Washington Street, Phoenix, Arizona 85034, stating that the proxy is revoked;
by submitting a later-dated proxy card relating to the same shares of Magellan common stock; or
by attending the special meeting via the virtual meeting website and voting at the meeting (your attendance at the special meeting will not, by itself, revoke your proxy; you must vote at the special meeting via the virtual meeting website).
Street name” holders of shares of Magellan common stock should contact their bank, broker, trust or other nominee to obtain instructions as to how to revoke or change their proxies.
Adjournments and Postponements
Although it is not currently expected, the special meeting may be adjourned or postponed one or more times to a later day or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the Merger Agreement. Your shares of Magellan common stock will be voted on any adjournment proposal in accordance with the instructions indicated in your proxy or, if no instructions were provided, “FOR” the proposal.
If a quorum is present at the special meeting, the special meeting may be adjourned by the affirmative vote of a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. In addition, even if a quorum is not present at the special meeting, the affirmative vote of shares representing a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter may adjourn the special meeting to a later date and time. In either case, the adjourned meeting may take place without further notice other than by an announcement made at the special meeting unless the adjournment is for more than thirty (30) days thereafter or, if, after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the special meeting. If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are insufficient votes at the time of the special meeting to adopt the Merger Agreement, then Magellan may seek to adjourn the special meeting. In addition, the Board may, after consultation with Centene, postpone the special meeting upon public announcement made prior to the date previously scheduled for the special meeting for the purpose of soliciting additional proxies or as otherwise permitted under the Merger Agreement.
Solicitation of Proxies
Magellan is soliciting the enclosed proxy card on behalf of the Board, and Magellan will bear the expenses in connection with the solicitation of proxies. In addition to solicitation by mail, Magellan and its directors, officers and employees may solicit proxies in person, by telephone or by electronic means. These persons will not be specifically compensated for doing this.
Magellan has retained MacKenzie Partners to assist in the solicitation process. Magellan will pay MacKenzie Partners a fee of approximately $20,000 plus reimbursement of certain specified out-of-pocket expenses. Magellan also has agreed to indemnify MacKenzie Partners against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).
Magellan will ask banks, brokers, trusts and other nominees to forward Magellan’s proxy solicitation materials to the beneficial owners of shares of Magellan common stock held of record by such banks, brokers, trusts or other nominees. Magellan will reimburse these banks, brokers, trusts or other nominees for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.
Questions and Additional Information
If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, MacKenzie Partners, toll-free at (800) 322-2885.
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PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT
As discussed elsewhere in this proxy statement, Magellan stockholders will consider and vote on a proposal to adopt the Merger Agreement. You should carefully read this proxy statement in its entirety for more detailed information concerning the Merger Agreement and the Merger. In particular, you should read in its entirety the Merger Agreement, which is attached as Annex A to this proxy statement. In addition, see the sections entitled “The Merger,” beginning on page 28, and “The Merger Agreement,” beginning on page 76.
The Board unanimously recommends that Magellan stockholders vote “FOR” the proposal to adopt the Merger Agreement.
If you return a properly executed proxy card, but do not indicate instructions on your proxy card, your shares of Magellan common stock represented by such proxy card will be voted “FOR” the proposal to adopt the Merger Agreement.
The approval of the proposal to adopt the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Magellan common stock entitled to vote on such proposal.
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PROPOSAL 2: NON-BINDING MERGER-RELATED COMPENSATION PROPOSAL
In accordance with Section 14A of the Exchange Act, we are providing our stockholders the opportunity to cast a vote to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Magellan’s named executive officers that is based on or otherwise relates to the Merger, as disclosed in the section entitled “The Merger—Interests of Directors and Executive Officers in the Merger—Golden Parachute Compensation,” beginning on page 68, including the table in such section and accompanying footnotes.
As an advisory vote, this proposal is not binding upon Magellan or the Board, and approval of this proposal is not a condition to completion of the Merger. Because the Merger-related executive compensation to be paid in connection with the Merger is based on the terms of the Merger Agreement as well as the contractual arrangements between Magellan and the named executive officers, such compensation may be paid or become payable, regardless of the outcome of this advisory vote, if the Merger Agreement is adopted (subject only to the contractual conditions in the Merger Agreement applicable thereto as well as any applicable contractual arrangements between Magellan and the named executive officers). Accordingly, you are asked to vote on the following resolution:
“RESOLVED, that the stockholders of Magellan Health, Inc. approve, on an advisory, non-binding basis, the compensation that may be paid or become payable to the named executive officers of Magellan Health, Inc. that is based on or otherwise relates to the Merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Merger—Interests of Directors and Executive Officers in the Merger—Golden Parachute Compensation,” beginning on page 68 (which disclosure includes the Golden Parachute Compensation Table required pursuant to Item 402(t) of Regulation S-K).”
The Board unanimously recommends that Magellan stockholders vote “FOR” the non-binding Merger-related compensation proposal.
If you return a properly executed proxy card, but do not indicate instructions on your proxy card, your shares of Magellan common stock represented by such proxy card will be voted “FOR” the non-binding Merger-related compensation proposal.
The approval of the non-binding Merger-related compensation proposal requires the affirmative vote of a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. The vote is advisory only and, therefore, not binding on Magellan or Centene or any of their respective subsidiaries, and, if the Merger Agreement is adopted by Magellan’s stockholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be paid or become payable to our named executive officers even if this proposal is not approved.
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PROPOSAL 3: AUTHORITY TO ADJOURN THE SPECIAL MEETING
Magellan stockholders may be asked to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the Merger Agreement if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.
The Board unanimously recommends that stockholders vote “FOR” the proposal to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the Merger Agreement if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.
If you return a properly executed proxy card, but do not indicate instructions on your proxy card, your shares of Magellan common stock represented by such proxy card will be voted “FOR” the proposal to adjourn the special meeting to a later date or time if necessary or appropriate.
The approval of the proposal to adjourn the special meeting if necessary or appropriate requires the affirmative vote of a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter. In addition, even if a quorum is not present at the special meeting, the affirmative vote of shares representing a majority of the shares of Magellan common stock present at the special meeting, whether via the virtual meeting website or represented by proxy, entitled to vote on such matter may adjourn the special meeting to a later date and time.
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THE MERGER
Overview
Magellan is seeking the adoption by its stockholders of the Merger Agreement. Under the terms of the Merger Agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into Magellan. Magellan will survive the Merger as a wholly owned subsidiary of Centene. The Board has approved the Merger Agreement and unanimously recommends that Magellan stockholders vote “FOR” the proposal to adopt the Merger Agreement.
Upon completion of the Merger, each Converted Share that is issued and outstanding immediately prior to the Effective Time will be automatically cancelled, cease to exist and converted into the right to receive $95.00 per share in cash without interest.
Following the completion of the Merger, Magellan will cease to be a publicly traded company.
Background of the Merger
The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. The following chronology does not purport to catalogue every conversation among the Board, or the representatives of each company, their respective advisors or any other persons.
Magellan’s senior management team and the Board regularly review and discuss Magellan’s performance, prospects and strategies for future growth. These reviews have included evaluation of potential opportunities to strengthen Magellan’s competitive position and enhance stockholder value through organic growth, acquisitions, investments and other transactions with participants in the managed care and broader healthcare industries.
In addition, over the past several years, the Board has considered other strategic alternatives as a means to enhance stockholder value. These alternatives have included the potential sale of all of Magellan or certain of its segments or businesses and the separation of the Company’s healthcare segment (which we refer to as “Healthcare”) and pharmacy management segment (which we refer to as “Pharmacy Management”), in some cases together with a sale of one of the separated segments in so-called “morris trust” or “reverse morris trust” transactions. In this regard, prior to late 2018, Magellan had received a number of unsolicited indications of interest and preliminary proposals from private equity sponsors (which we refer to as “sponsors”), on behalf of themselves and/or their portfolio companies, and corporate industry participants (which we refer to as “strategics”), regarding extraordinary transactions involving the entire Company or individual parts. In certain of these instances, Magellan engaged financial and legal advisors to assist it in assessing the third party’s interest, had preliminary discussions with the interested parties and, following the execution of confidentiality agreements, provided access to confidential information regarding Magellan. None of these approaches resulted in any definitive proposals with respect to a transaction.
On December 13, 2018, Starboard Value LP (which we refer to as “Starboard”), a New York-based investment adviser, announced in a Schedule 13D filing with the SEC that it was the beneficial owner of approximately 9.8% of the outstanding shares of Magellan common stock. In its filing, Starboard disclosed, among other things, its belief that the shares of Magellan common stock were undervalued and represented an attractive investment opportunity.
In late 2018, Michael Neidorff, the Chairman, President and Chief Executive Officer of Centene, contacted Barry Smith, then the Chairman and Chief Executive Officer of Magellan, by telephone to indicate that Centene may be interested in exploring a potential acquisition of Magellan. Mr. Neidorff did not make a proposal but indicated that Centene intended to move quickly and would only need to conduct a limited due diligence review of Magellan before being in a position to decide whether to make a proposal. In that regard, Mr. Neidorff asked that the Company enter into a confidentiality agreement with Centene for the purpose of Magellan’s furnishing limited non-public information to Centene. Mr. Neidorff also noted that Centene would be unwilling to be a participant in any organized sales process that Magellan might determine to pursue.
Mr. Smith informed the Board of his conversation with Mr. Neidorff and Centene’s potential interest at a meeting held on December 29, 2018. Present at the meeting were representatives of Weil, Gotshal & Manges LLP (which we refer to as “Weil”), counsel to the Company, and Goldman Sachs, the financial advisor retained by the Company in connection with Starboard’s ownership position and Centene’s potential interest in the Company. At
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this meeting, the Board determined to explore Centene’s interest as a means of potentially maximizing value on behalf of the Company’s stockholders and authorized the Company to enter into a confidentiality agreement with Centene in order to keep the parties’ discussions confidential and to facilitate Centene’s due diligence review.
On January 8, 2019, Magellan entered into a confidentiality agreement with Centene (which we refer to as the “Confidentiality Agreement”). The Confidentiality Agreement included a standstill provision but did not prohibit Centene from making confidential acquisition proposals to Magellan. Subsequent to the execution of the Confidentiality Agreement, Magellan furnished Centene certain non-public information regarding its businesses.
Also on January 8, 2019, the Board, together with the Company’s legal and financial advisors, held a meeting and reviewed certain of the information to be made available to Centene. At that meeting, Mr. Smith reported on telephone calls he had received from three other parties, each of which had separately expressed a potential interest in Magellan should the Company determine to explore a possible sale or other extraordinary transaction, although none had provided any specifics beyond these general statements of interest. Mr. Smith also discussed a follow-up call he had received from Mr. Neidorff during which Mr. Neidorff reiterated Centene’s potential interest in exploring a potential acquisition of Magellan. Following these discussions, the Board authorized Goldman Sachs to contact Centene’s financial advisor, as had been requested by Mr. Neidorff.
On March 3, 2019, the Board met, among other things, to continue its assessment of the possible interest of Centene and other parties and to determine next steps. At that meeting, Mr. Smith reported on his most recent discussions with Mr. Neidorff. Mr. Smith noted that Mr. Neidorff had informed him that the current market price of Magellan common stock following the release of full year-2018 results was such that Centene would not be in a position to offer to pay a premium for the shares of Magellan common stock. Mr. Smith stated that he had told Mr. Neidorff that, if Centene nevertheless wished to submit an indication of its interest, it should do so. In response, Mr. Neidorff indicated to Mr. Smith that Centene would not do so at this time and instead would wait to see if the current market environment changed in the coming weeks.
Following Mr. Smith’s report on Centene, the Magellan directors engaged in a discussion with Weil and Goldman Sachs concerning the process alternatives available to the Board to best explore potential transactions with those third parties that had most recently expressed an interest in the Company, as well as with other potential buyers of all or parts of the Company. Following a discussion and consideration of the potential positives and negatives associated with the various alternatives, the Board authorized and directed Goldman Sachs to conduct a broad confidential outreach (which we refer to as the “Broad Outreach”) to strategics and sponsors potentially having an interest in, and possessing the capabilities to execute on, a transaction involving all or part of the Company. In this outreach, the Board instructed Goldman Sachs to highlight its desire to maximize value for Magellan stockholders and to indicate that interested parties would be welcome to submit proposals for the whole Company or individual parts, including Healthcare and Pharmacy Management.
On March 4, 2019, Goldman Sachs commenced contacting third parties, including Centene and the three other parties that had contacted Mr. Smith on an unsolicited basis. Centene informed Goldman Sachs that it was not interested in participating in the process. A total of 34 parties expressed potential interest in the Company, with 24 of those parties entering into confidentiality agreements with Magellan. Those confidentiality agreements, with certain exceptions, included standstill provisions that prohibited the third party from requesting waivers of the standstill restrictions. The parties entering into confidentiality agreements with Magellan received certain materials regarding the Company and details concerning the process contemplated to be undertaken pursuant to the Broad Outreach and such parties were requested to submit “first round” indications of interest on March 27, 2019.
On March 27, 2019, Magellan received indications of interest from nine parties. Of these nine parties, Magellan invited eight to advance to the “second round” of the Broad Outreach to complete due diligence, participate in management presentations and formulate definitive proposals. Of the eight parties, four indicated an interest in acquiring the entire Company, two indicated an interest in acquiring Healthcare and two submitted indications regarding Pharmacy Management. One strategic, Molina Healthcare, Inc. (which we refer to as “Molina”), was not advanced as its interest was limited only to the portion of the Company’s Healthcare business that contracts with state Medicaid agencies and the Centers for Medicare & Medicaid Services to manage care for beneficiaries under various Medicare programs (which we refer to as “Magellan Complete Care” or the Company’s “MCC Business”).
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Molina was later invited back into the process to conduct detailed due diligence on the MCC Business. In addition, during the second round of the Broad Outreach, Magellan received interest from four additional parties, one of which was invited into the process in connection with its interest in Pharmacy Management.
On March 28, 2019, following the approval and authorization of the Board, Magellan announced that it had entered into an agreement (which we refer to as the “Starboard Agreement”) with Starboard and certain of its affiliates. Pursuant to the Starboard Agreement, among other things, Magellan agreed to (i) increase the size of the Board from nine directors to 13 directors, (ii) appoint to the Board four individuals (which we refer to as the “Appointed Directors”) from the slate of candidates that Starboard had previously announced it would nominate for election as directors at the 2019 Annual Meeting to fill the resulting vacancies, (iii) nominate the Appointed Directors for election as members of the Board at the Company’s 2019 Annual Meeting of Stockholders (which we refer to as the “2019 Annual Meeting”) and (iv) decrease the size of the Board from 13 to 10 directors effective immediately following the election of directors at the 2019 Annual Meeting. In addition, Magellan agreed to form a strategic committee of the Board to review corporate strategy (which we refer to as the “Strategic Committee”) and to appoint to this committee Peter Feld and Steven Shulman, two of the Appointed Directors, as well as two incumbent directors to be determined by the Board. Subsequent to the entry into the Starboard Agreement, two of Magellan’s incumbent directors determined not to stand for re-election at, and one other incumbent director determined to retire immediately after, the 2019 Annual Meeting.
In connection with the second round of the Broad Outreach, Magellan opened a virtual dataroom to interested parties that remained open through June 2019, made management presentations, conducted due diligence question and answer sessions and prepared, made available and discussed draft transaction documents for each of the various transactions that were under consideration.
On June 6, 2019, the date set for submission of second round proposals, Magellan received revised proposals from three of the interested parties, with the rest of the participants declining to continue in the process. One proposal submitted by a sponsor (which we refer to as “Sponsor A”) was to acquire the Company, and the other two were to acquire Pharmacy Management. Representatives of Sponsor A indicated to representatives of the Company’s financial advisor that Sponsor A’s proposal was conditioned on its ability to enter into a definitive agreement to sell Pharmacy Management to one of the other two bidders at an acceptable minimum price. Subsequent to Magellan’s receipt of Sponsor A’s proposal, it became evident to the Company that Sponsor A also envisioned entering into a definitive agreement with Molina to sell the MCC Business at or about the time it entered into a definitive merger agreement to acquire the Company. Following review by the Strategic Committee and the Board with the Company’s legal and financial advisors, it was determined that Sponsor A’s proposal was an attractive and superior proposal and agreed to Sponsor A’s request for a limited period of exclusivity (which would not preclude the Company from negotiating and entering into agreements with the other two bidders for a sale of Pharmacy Management) to complete its due diligence and attempt to negotiate the multi-party transaction contemplated by its proposal.
Following its receipt of Sponsor A’s revised proposal through the end of July 2019, representatives of Magellan and its advisors spent extensive periods of time providing due diligence access and responses to questions to Sponsor A and its financing sources, the potential buyer of Pharmacy Management and Molina. During this time period, in addition to negotiations conducted directly by Sponsor A with the potential buyer of Pharmacy Management and Molina, Magellan and its advisors also spent considerable time and effort engaged in negotiations with Sponsor A, a potential buyer of Pharmacy Management and, to a lesser extent, Molina as the potential buyer of the MCC Business, in an attempt to facilitate an agreement on terms for the envisioned multi-party transaction. The Strategic Committee and the Board held multiple meetings during June and July 2019 to receive progress updates on the potential transactions and to provide direction to Magellan’s management and advisors. Notwithstanding these efforts, at a meeting held on July 29, 2019, the Board determined to terminate negotiations with Sponsor A and the other interested parties due to its low level of confidence that terms for the multi-party transaction would be agreed to by the four parties and concerns that distraction of the Company’s senior management team due to the extensive time commitments required by the process could harm the continued operation of the Company’s businesses.
Also at the July 29, 2019 Board meeting, Mr. Smith notified the directors that he intended to retire, but that he would continue to serve as the Company’s Chief Executive Officer and a member of the Board for a period required to ensure a smooth transition. At that meeting, Steven Shulman was elected Chairman of the Board.
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On September 11, 2019, Sponsor A submitted an unsolicited revised proposal (which we refer to as the “September 2019 proposal”) to acquire the Company and asked that Magellan and its advisors re-engage for the purposes of completing the transaction. Sponsor A’s proposal contemplated that it would enter into a definitive agreement for the sale of the MCC Business with Molina at the same time as it entered into a definitive merger agreement with the Company. Unlike its previous proposal, the September 2019 proposal did not contemplate an agreement with a buyer of Pharmacy Management. Based in part on Sponsor A’s assurances that few issues remained open between it and Molina and that it could complete the work necessary to execute and deliver definitive transaction documents and arrange financing quickly, the Board authorized management and its advisors to re-engage with Sponsor A.
In September 2019, Magellan re-opened its virtual dataroom to Sponsor A, its financing sources and Molina and also discussed and negotiated open points with Sponsor A on the transaction documentation. On October 11, 2019, Sponsor A submitted a revised proposal (which we refer to as the “October 2019 proposal”) to acquire Magellan. Unlike the September 2019 proposal, the October 2019 proposal was conditioned on a sale by Sponsor A of Pharmacy Management to the party that had been negotiating in July 2019 with Sponsor A and the Company for the purchase of that business. The October 2019 proposal also reflected a price reduction from the September 2019 proposal, which Sponsor A stated was a reflection of unfavorable conditions in the financing markets, changes in customer pipeline and additional tax liabilities due to the impact of the sales of the MCC Business and Pharmacy Management.
Following a review of the October 2019 proposal by the Strategic Committee and the Board, it was determined that Magellan and its advisors would communicate to Sponsor A a minimum per share price that would be acceptable to the Board and a deadline by which definitive transaction documents would need to be executed. On October 18, 2019, a representative of Sponsor A informed Goldman Sachs that the financing terms available would not allow it to pay a price that would be acceptable to the Board. Following this communication, Magellan terminated discussions with Sponsor A.
At various times during the Broad Outreach, Sponsor A modified orally and in writing the prices at which it was interested in acquiring the entire Company. At no point did Sponsor A indicate an interest in acquiring Magellan at a per share price in excess of $75.00, the maximum per share price offered by Sponsor A to Magellan during the parties’ negotiations, and Sponsor A’s final proposed per share offer price prior to the termination of discussions was less than $75.00.
On October 31, 2019, Magellan issued a press release announcing the appointment of Kenneth Fasola as Chief Executive Officer of the Company, effective November 14, 2019. In connection with Mr. Fasola’s appointment, Barry Smith stepped down as a member of the Board and as the Company’s Chief Executive Officer, effective as of November 14, 2019. Following his appointment, at the direction of the Board, Mr. Fasola and the other members of the Company’s senior management team initiated a comprehensive portfolio analysis of the Company’s businesses to evaluate the value proposition offered by each business and the brand and growth potential of the Company in each of the markets served by Magellan’s businesses.
In late February 2020, following the receipt of unsolicited proposals from a number of interested parties, the Board authorized Magellan’s management team and a financial advisor engaged by the Company for this purpose to commence a process to explore the potential for a sale of its MCC Business. In the Board’s view, a sale of the MCC Business at an attractive price would eliminate the risks of execution of its profitability improvement initiatives regarding the MCC Business, provide the Company with additional financial flexibility and allow the Company’s senior management team to focus on the remaining businesses and improving the services provided to the customers of those businesses. Pursuant to this process, a number of parties (a) entered into amendments to the confidentiality agreements previously executed and delivered in connection with the Broad Outreach to extend the time periods during which the standstill and non-solicitation and no-hire provisions contained therein would be in effect, (b) were provided due diligence access and management presentations, (c) were provided with transaction documentation for their review and comment and (d) were asked to submit proposals to purchase the MCC Business, as well as to consider commercial agreements with Pharmacy Management and the Behavioral and Specialty Health businesses of Healthcare. Following the conclusion of this process, on April 30, 2020, Magellan publicly announced that it had entered into a definitive agreement with Molina to sell the MCC Business to Molina for a purchase price of $850 million, subject to certain adjustments (which we refer to as the “MCC Business Sale Announcement” and such sale, the “MCC Business Sale”), as well as various binding letters of intent to enter into long-term commercial agreements, including new medical pharmacy and
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musculoskeletal management services to be provided by Magellan to Molina members and Molina’s retaining Magellan for behavioral health, pharmacy benefit management (which we refer to as “PBM”), radiology and musculoskeletal management services in certain markets serviced by the MCC Business.
On May 15, 2020, following the MCC Business Sale Announcement, Mr. Neidorff contacted Mr. Fasola by phone and indicated an interest in discussing the Company’s strategic plans following the completion of the MCC Business Sale. Mr. Neidorff invited Mr. Fasola to meet in St. Louis, Missouri to continue this discussion. On May 19, 2020, in anticipation of the in-person meeting in St. Louis, Centene requested that the parties enter into an amendment to the Confidentiality Agreement and furnished a proposed draft of such an amendment to David Haddock, General Counsel and Secretary of Magellan. The draft amendment served to extend the duration of the standstill provisions applicable to Centene and the mutual non-solicitation and no-hire provisions and the overall term of the agreement. The parties entered into the amendment prior to the in-person meeting, with effect as of May 19, 2020 (we refer to the Confidentiality Agreement, as so amended, as the “Amended Confidentiality Agreement”).
Mr. Fasola informed Mr. Shulman of Mr. Neidorff’s outreach on their next regularly scheduled weekly call. From May 15, 2020 until the execution of the Merger Agreement on January 4, 2021, in addition to updates provided to the Board as described herein, Mr. Fasola kept Mr. Shulman updated regularly on the status and activities related to Centene’s interest in a potential transaction, including any conversations and meetings that Mr. Fasola had with Mr. Neidorff and other Centene representatives in which Mr. Shulman did not participate.
On May 21, 2020, Mr. Fasola, Mr. Neidorff and Jesse Hunter, Executive Vice President and Chief Strategy Officer of Centene, met in St. Louis. During this meeting, Mr. Neidorff informed Mr. Fasola of Centene’s renewed interest in exploring a potential acquisition of Magellan and explained the strategic rationale for Centene’s interest. Mr. Neidorff also commented that for regulatory and other reasons the closing of the MCC Business Sale would need to occur prior to an acquisition of the Company by Centene and that he would expect that certain members of the Company’s senior management team would continue in their positions with the Company following the transaction. Mr. Neidorff also noted that Centene would not participate in any organized sale process that Magellan might pursue. Mr. Fasola explained to Messrs. Neidorff and Hunter that while he would report Centene’s interest to his Board, in his view the timing was not right for a transformative transaction involving the Company in the near term and that such a transaction presented challenges for Magellan for several reasons, including Magellan’s unwillingness to take actions that could in any way negatively impact or delay the pending MCC Business Sale, the Company’s focus on and the dedication of management-team time to the implementation of the Medi-Cal pharmacy benefit administration contract awarded to the Company by the state of California in late 2019 (which we refer to as the “Medi-Cal PBA Agreement”) and the business-transformation initiatives that were underway and that were being carried out under Mr. Fasola’s direction. Subsequent to this meeting, Mr. Hunter provided Magellan representatives with a list of information and materials regarding Magellan that it wished to receive to facilitate its review of the desirability of a transaction between the parties.
Following the May 21 meeting, Mr. Neidorff telephoned Mr. Shulman to express Centene’s interest in pursuing a potential acquisition of the Company.
On June 8, 2020, Mr. Neidorff requested another meeting with Mr. Fasola, as well as Messrs. Shulman and Haddock, to further discuss Centene’s interest in exploring a potential acquisition of the Company, which meeting was subsequently scheduled for June 18, 2020.
On June 9, 2020, representatives of Skadden, Arps, Slate, Meagher & Flom LLP (which we refer to as “Skadden”), counsel to Centene, and Weil spoke by telephone. In this conversation, the Skadden representatives stated that their client’s strong preference was to explore the possibilities for a mutually beneficial transaction as promptly as possible and, if mutually acceptable terms could be agreed to, envisioned the execution by the parties of a merger agreement that would provide for Centene’s acquisition of Magellan conditioned, among other things, on the consummation of the MCC Business Sale. The Skadden representatives and the Weil representative acknowledged that the terms of the MCC Business Sale would need to be examined before it could be determined whether entry into such a merger agreement during the pendency of the MCC Business Sale would be consistent with Magellan’s obligations under the MCC Business Sale transaction documentation or could impact or delay the timing of the completion of such transaction.
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On June 17, 2020, at a regularly scheduled meeting of the Board, Messrs. Fasola and Shulman reported on their conversations and meeting with Mr. Neidorff. The Board discussed Centene’s expression of interest and it was the consensus of the Board that management’s primary focus should be on the completion of the MCC Business Sale and the implementation of the Medi-Cal PBA Agreement and the other business initiatives that were underway, but that Messrs. Fasola and Shulman should continue to agree to meet and discuss Centene’s interest with Mr. Neidorff and the other Centene representatives and provide Centene with limited due diligence materials to determine if Centene’s interest was serious and at an attractive price level.
On June 18, 2020, Messrs. Fasola, Shulman and Haddock traveled to St. Louis to meet with Messrs. Neidorff and Hunter and representatives of Skadden. The Centene representatives reiterated their interest in exploring Centene’s possible acquisition of Magellan in as expeditious a manner as possible consistent with Magellan’s obligations under the transaction agreements for the MCC Business Sale. The Centene representatives also reiterated the strategic rationale for such a transaction, including broadening and deepening Centene’s whole health capabilities and establishing a leading behavioral health platform. The Magellan representatives reiterated their views as to why attempting to effect a transaction such as the one envisioned by Centene in the near term was less than optimal from Magellan’s perspective, but the meeting participants agreed that their respective legal counsel would discuss the regulatory requirements and likely timing for the possible transaction as well as the potential impact of the execution and delivery of a definitive merger agreement on the pending MCC Business Sale. The Magellan representatives also agreed to provide Centene with certain non-public information regarding the Company to aid Centene’s efforts in determining its interest in continuing to explore a potential transaction and arriving at a preliminary view on valuation of the Company. On June 19, 2020, following the in-person meeting in St. Louis, Mr. Fasola instructed Jon Rubin, then the Chief Financial Officer of Magellan, to share with Centene certain high-level non-public information concerning Magellan and its prospects that had been previously requested by Centene.
On June 23, 2020, Mr. Fasola provided the Board with a written summary of the June 18 meeting in St. Louis and noted his expectation that following delivery of certain information by Magellan, Centene would communicate, for the Board’s review and consideration, a preliminary price or range of prices at which it would consider the acquisition of the Company.
During the ensuing several weeks, representatives of Centene, with the assistance of Centene’s financial advisors, Allen & Company LLC and J.P. Morgan Securities LLC, reviewed the limited non-public business and financial information that was provided by the Company. During this period, representatives of the parties’ respective legal advisors discussed the regulatory filings and consents that would be required in respect of an acquisition of Magellan by Centene, the likely timing thereof and the potential impact on the regulatory filings and consents needed to consummate the MCC Business Sale, as well as the potential impact of the execution of a definitive merger agreement between the parties on the MCC Business Sale. During these conversations, Weil informed Skadden that Magellan would not sign a definitive merger agreement with Centene prior to the consummation of the MCC Business Sale. On July 10, 2020, representatives of Magellan provided representatives of Centene with certain preliminary financial data.
On July 21, 2020, Messrs. Fasola and Rubin had a teleconference with Mr. Hunter and Jeff Schwaneke, Executive Vice President and Chief Financial Officer of Centene, to discuss certain questions of the Centene representatives regarding the limited non-public information made available, including the Company’s preliminary financial data.
As part of the Company’s normal multi-year forecasting process, in Summer 2020, Magellan’s management developed financial forecasts and unaudited prospective financial information relating to the Company for fiscal years through 2024, which included a small contingency to account for unspecified risks (which we refer to as the “Risk Contingency”), consistent with management’s historical practice. Elements of this forecast were shared with the Board at their regularly scheduled meeting on July 24, 2020. Later on July 24, 2020, Mr. Rubin provided certain additional non-public information to representatives of Centene, including a five-year financial forecast (which financial forecasts we refer to as the “July 2020 Forecasts” in the section of this proxy statement entitled “—Certain Forecasts”). The July 2020 Forecasts furnished to Centene were the same as those reviewed by the Board earlier in the day, with the exception that the forecasts provided to Centene included two additional years and did not include the Risk Contingency.
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On August 9, 2020, Mr. Neidorff called Mr. Fasola and informed him that Centene intended to submit an indication of interest regarding a potential acquisition of Magellan at $86.00 per share (which we refer to as the “preliminary Centene proposal”). Mr. Fasola also understood Mr. Neidorff to say that the preliminary Centene proposal would give Magellan stockholders dollar-for-dollar “credit” for the cash, net of transaction taxes and expenses and Company indebtedness, resulting from the closing of the MCC Business Sale. Mr. Neidorff indicated that, if the price was acceptable to the Board, Centene would expect a 30-day period of exclusivity to complete its due diligence review and prepare and negotiate transaction documentation. Magellan estimated that the net cash proceeds from the MCC Business Sale would represent approximately $12.00 per share, which, when added to the $86.00 per share price indicated by Mr. Neidorff, resulted in Mr. Fasola’s understanding that the implied total value offered by the preliminary Centene proposal was $98.00 per share. On the same day, Mr. Neidorff called Mr. Shulman and conveyed what Mr. Shulman understood to be the same information regarding Centene’s indicated price and the additional “credit” for the net cash from the MCC Business Sale. Also on August 9, 2020, at Mr. Fasola’s request, Mr. Rubin called Mr. Hunter to confirm the Company’s understanding of the verbal preliminary proposal, and Mr. Rubin understood Mr. Hunter to convey the same additional “credit” concept for the net cash from the MCC Business Sale.
On August 14, 2020, a meeting of the Board was held to discuss Centene’s verbal preliminary proposal, including the implied total value of $98.00 per share, which represented a premium of approximately 29.2% above Magellan’s closing price of $75.83 on August 13, 2020. It was the consensus of the Board that the indicated value to be delivered to the Company’s stockholders was sufficiently attractive to warrant continued engagement with Centene and the Board authorized the Company’s management to continue to conduct discussions and grant due diligence access to Centene.
On August 16, 2020, Mr. Fasola emailed Mr. Neidorff to inform him that on the basis of the preliminary Centene proposal, the Board was supportive of management’s continuing to explore a possible transaction with Centene.
In late August 2020, the Company contacted representatives of Goldman Sachs and Guggenheim Securities regarding their availability to act as co-financial advisors to the Company in connection with a potential transaction with Centene. Goldman Sachs and Guggenheim Securities commenced acting as co-financial advisors to the Company in connection with the potential transaction shortly thereafter and Magellan formally confirmed the engagement of these firms in separate agreements dated October 27, 2020. Prior to their respective engagements, each financial advisor delivered to Magellan an executed disclosure letter regarding its relationships with Centene. For a summary of these relationships, see the sections entitled “—Opinion of Goldman Sachs & Co. LLC” and “—Opinion of Guggenheim Securities, LLC,” beginning on pages 48 and 55, respectively.
During late August and early-to-mid September 2020, Mr. Rubin and Mr. Hunter, together with representatives of the Company’s and Centene’s respective advisors, held telephone calls and exchanged correspondence regarding the proposed timeline for Centene to conduct its due diligence review, formally present to Magellan a proposal regarding price and the timeline to complete transaction documentation should the parties agree on price and other terms. During these discussions, Mr. Rubin and the Company’s financial advisors reiterated that Magellan would not enter into a definitive merger agreement prior to the closing of the MCC Business Sale.
On October 1, 2020, Mr. Fasola provided the Board with a written update on the status of the Company’s engagement with Centene and the due diligence process, noting that Centene had identified certain due diligence priorities as a precondition to confirming its interest and views on price. Mr. Fasola stated that the Company was working with its legal and financial advisors to evaluate each request and indicated that, notwithstanding Centene’s position, the Company would not provide certain competitively sensitive information prior to receipt of a satisfactory preliminary written proposal with respect to price.
In early-to-mid October, members of management of Magellan and Centene, at times together with representatives of the Company’s and Centene’s respective advisors, held telephonic conferences at which the Magellan representatives provided the Centene representatives with presentations regarding the Company’s Behavioral Health, Pharmacy Management and Specialty Health businesses. On October 12, 2020, Mr. Fasola met with Messrs. Neidorff and Hunter in St. Louis to discuss the Company’s Behavioral Health business strategy.
On October 23, 2020, Mr. Neidorff called Mr. Fasola and stated that the Company would receive a written offer from Centene of $86.00 per share prior to the Company’s Board meeting scheduled to take place on October 27, 2020. No other terms of Centene’s offer were disclosed or discussed on this call. Mr. Fasola subsequently
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informed Mr. Shulman and the Company’s advisors of the anticipated written offer. On October 26, 2020, Centene sent a letter addressed to Mr. Shulman setting forth preliminary, non-binding terms for Centene’s acquisition of Magellan. The October 26 letter (which we refer to as the “October 26 proposal”) confirmed Centene’s previously communicated price of $86.00 per share, comprised of $64.50 per share in cash and a fixed ratio of Centene stock. On October 23, 2020, the last trading day prior to the Company’s receipt of Centene’s letter, the closing price of Magellan common stock was $78.50. The October 26 proposal implied a pro forma ownership for Magellan stockholders in Centene of approximately 1.5%. In addition, the October 26 proposal indicated, among other things, that (1) Centene believed that it could obtain regulatory approvals for the transaction expeditiously, (2) the transaction would not be subject to any financing condition, (3) Centene is committed to building a differentiated specialty solutions business and looked forward to discussing leadership opportunities with the Magellan team, (4) Centene’s offer assumed a 30-day period of exclusivity to complete due diligence and negotiate definition documentation, (5) Centene would need to conduct additional due diligence prior to executing a definitive transaction agreement and (6) Centene would share a draft of the merger agreement for the transaction promptly after Magellan’s entry into the exclusivity agreement. Centene then sent representatives of Goldman Sachs and Guggenheim Securities a draft exclusivity agreement (which we refer to as the “Exclusivity Agreement”).
Following receipt of the October 26 proposal and consultation with Mr. Shulman and the Company’s advisors on October 26, Mr. Fasola telephoned Mr. Neidorff to clarify the financial terms of the October 26 proposal, which varied from Mr. Fasola’s understanding of the oral indication conveyed by Mr. Neidorff on August 9, 2020, in that it did not give Magellan stockholders the additional “credit” for the net cash resulting from the closing of the MCC Business Sale. Mr. Neidorff stated that Centene’s $86.00 per share indication of interest accounted for the net cash resulting from the MCC Business Sale and that the preliminary Centene proposal did not contemplate giving “credit” of such amount to Magellan stockholders. Mr. Fasola informed Mr. Neidorff that given this position, it was his view that the October 26 proposal would not be viewed as attractive by the Board.
On October 27, 2020, the Board held a regularly scheduled meeting, which was attended by certain members of Magellan management and representatives of Goldman Sachs, Guggenheim Securities and Weil. Mr. Fasola and Mr. Shulman presented the terms of the October 26 proposal to the Board. Representatives of Goldman Sachs and Guggenheim Securities then delivered a presentation to the Board regarding general market and industry conditions and their respective preliminary financial analyses of the Company and the October 26 proposal. In connection with the Board’s consideration of the potential transaction, financial forecasts through 2024 that were consistent with the financial forecasts that had been reviewed with the Board on July 24, 2020, were presented to the Board (which financial forecasts we refer to as the “October 2020 Forecasts” in the section of this proxy statement entitled “—Certain Forecasts”). The Board discussed with members of Magellan’s management and representatives of Goldman Sachs and Guggenheim Securities certain strategic alternatives available to the Company, including continuing as a standalone company and deployment of the net cash from the closing of the MCC Business Sale. Representatives of Weil reviewed certain terms and legal aspects of the October 26 proposal and discussed with the Board various legal matters, including the directors’ fiduciary duties in considering the October 26 proposal and process considerations, including Centene’s request for exclusivity. Following the advisors’ presentations and discussion, the Board determined that the October 26 proposal was not attractive but that the parties should continue their dialogue to determine if Centene’s offer could be improved. After discussion, the Board also was of the view that the Company would not consider granting a period of exclusivity unless Mr. Neidorff indicated a higher price. In addition, the Board determined that it would be premature for any member of management to have discussions with Centene concerning possible post-transaction employment. The Board directed Messrs. Fasola and Shulman to respond to Centene accordingly.
Later on October 27, 2020, Mr. Fasola spoke to Mr. Neidorff by telephone, during which Mr. Fasola reminded Mr. Neidorff of his understanding of the basis on which Magellan had agreed to provide Centene with access to preliminary non-public due diligence information, namely that Centene’s proposal as to price would reflect a full market premium to Magellan’s then-current market price and permit Magellan stockholders to receive the additional “credit” for the net cash proceeds, after debt, from the MCC Business Sale and noted that the financial terms of the October 26 proposal were inconsistent with this understanding. Further, Mr. Fasola informed Mr. Neidorff that the Board had expressed concerns regarding the risks to Magellan and the initiatives and business transformation that were underway that could result from advancing discussions and distracting
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management if discussions with Centene were unlikely to result in a price viewed as compelling by the Board. Mr. Fasola informed Mr. Neidorff that the Board did not view the October 26 proposal as attractive. Mr. Neidorff asked Mr. Fasola to offer a counter-proposal, but Mr. Fasola did not offer a counter-proposal on the call.
On October 29, 2020, Mr. Fasola and Mr. Hunter spoke by telephone. Mr. Fasola said that he and Mr. Shulman had reflected on Mr. Neidorff’s request for a counter-proposal and, while he was not prepared to mention a specific price, he informed Mr. Hunter that the sentiment of the Board was to view favorably an all-cash price of greater than $100.00 per share. Mr. Fasola told Mr. Hunter that, if Centene submitted a revised proposal meeting this criteria, he believed that the Board would view the proposal as attractive and grant Centene a brief period of exclusivity.
On October 30, 2020, Mr. Neidorff held a conference call with Messrs. Fasola and Shulman. During the call, Mr. Neidorff said that Magellan’s price indication as conveyed to Mr. Hunter was well in excess of premia paid in relevant precedent transactions. Mr. Neidorff told the Magellan representatives that Centene was increasing its proposal to $91.00 per share and said that such a price represented a 28% premium over Magellan’s “net equity”, meaning Magellan’s closing per share price on October 30, 2020 less the net cash per share that would result from the MCC Business Sale. Mr. Neidorff noted that his proposal contemplated that the merger consideration would be comprised of a mix of cash and stock as previously communicated and that the cash proceeds of the MCC Business Sale would remain in the Company at the time of the acquisition by Centene.
The next day Mr. Neidorff and Mr. Shulman had a number of calls during which they discussed Centene’s latest proposal. Mr. Shulman told Mr. Neidorff that be believed that applying the premia paid in the precedent transactions referenced by Mr. Neidorff and the “net equity” premium calculation cited by Mr. Neidorff would result in a price per share greater than $91.00. Mr. Shulman also told Mr. Neidorff that he did not believe that the $91.00 per share proposal would gain the support of the Board. Mr. Neidorff indicated that, if Mr. Shulman believed his latest proposal was not sufficiently attractive, then he should put forth a counter-proposal.
On November 1, 2020, following a discussion of Centene’s $91.00 per share proposal with the Company’s advisors, Messrs. Fasola and Shulman called Mr. Neidorff and proposed a per share price of $100.00 in cash. Mr. Neidorff told Messrs. Fasola and Shulman that in his view this price was a restatement of the lower end of the prior “range” proposed by Magellan and not a counter-proposal, in response to which Mr. Shulman made a revised counter-proposal of $99.00 per share in cash.
Telephonic conference calls among Messrs. Neidorff, Fasola and Shulman ensued throughout the day on November 1, 2020. Following Magellan’s counter-proposal, Mr. Neidorff informed Mr. Fasola and Mr. Shulman that Centene would increase its offer to $94.00 per share. Mr. Shulman responded that he continued to believe that the premium represented by Centene’s increased price remained inconsistent with the premia for the precedent transactions and the “net equity” premium calculation previously cited by Mr. Neidorff and that he would consult with his financial advisors to confirm the accuracy of this view. Shortly thereafter, after consulting with the Company’s financial advisors, Messrs. Fasola and Shulman resumed discussions with Mr. Neidorff, during which Mr. Neidorff informed Messrs. Fasola and Shulman that Centene’s best and final offer was $95.00 per share in cash (which we refer to as the “November 1 proposal”). The November 1 proposal represented a premium of 31.5% to the closing share price of $72.27 on October 30, 2020 and a 26.2% premium over the volume-weighted average Magellan stock price for the 30 full consecutive trading days ending on such date. Mr. Fasola and Mr. Shulman noted that they would present the November 1 proposal to the Board for consideration.
In the evening of November 1, 2020, a meeting of the Board was convened, with members of management of Magellan and representatives of Goldman Sachs, Guggenheim Securities and Weil in attendance, to review the status of discussions with Centene. Messrs. Fasola and Shulman reported on their telephone calls with Mr. Neidorff and described the process that resulted in Centene’s November 1 proposal. The Company’s financial advisors then presented preliminary financial analyses based on the October 2020 Forecasts and related to a potential transaction. The Board discussed the financial merits of the November 1 proposal and determined that the November 1 proposal was attractive in light of, among other things, the execution risks associated with the initiatives and business transformation contemplated by the Company’s business plan and potential uncertainties relating to developments in the healthcare industry. In connection with Centene’s request for a 30-day period of exclusivity, the Board considered a number of relevant considerations, including the scope of the Broad Outreach, which included contact with potential strategic acquirors, and the results of that process, the
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management distraction, leak and other risks associated with contacting third parties, including the possibility of losing the opportunity to engage in a transaction with Centene given Mr. Neidorff’s stated view that Centene would be unwilling to participate in any process by Magellan to explore alternative transactions, the Board’s belief, following consultation with its financial advisors, that it was highly unlikely that any third party would be interested in acquiring Magellan at a price equal to or in excess of the November 1 proposal and the fact that Magellan would have the ability to consider unsolicited proposals following the execution and announcement of a merger agreement with Centene. In light of the foregoing, the Board directed Mr. Fasola and Mr. Shulman to inform Centene that based on the terms of the November 1 proposal, the Company would be willing to enter into the requested period of exclusivity with Centene and proceed to negotiate the terms of a merger agreement and conclude the due diligence process.
Following the Board meeting, Mr. Shulman telephoned Mr. Neidorff to report on the Board’s determination. Mr. Neidorff subsequently called Mr. Fasola to continue discussions regarding the potential transaction.
On November 2, 2020, representatives of Weil sent representatives of Skadden a revised draft Exclusivity Agreement providing for an initial exclusivity period of 14 days and an additional 14-day extension of exclusivity if, prior to the expiration of the initial 14-day period, Centene confirmed in writing the substantial completion of its due diligence review and that Centene continued to support a potential transaction at a per share price equal to or greater than $95.00. The revised draft also provided that exclusivity would terminate at such time as any representative of Centene indicated to any representative of the Company that Centene is no longer pursuing or interested in an acquisition of the Company at a per share price equal to or greater than $95.00 and deleted the requirement that the Company notify Centene of any inquiry, proposal or offer that the Company might receive with respect to an alternative transaction. Later that day, representatives of Weil and Skadden had a teleconference regarding, among other matters, the term of the exclusivity period, which Skadden stated was unacceptable to Centene.
Also on November 2, 2020, Mr. Hunter called Mr. Fasola to confirm receipt of Magellan’s comments to the Exclusivity Agreement and said that Skadden would be sending Weil a revised draft reflecting a 30-day exclusivity period. Mr. Hunter also alerted Mr. Fasola to the fact that Centene would be sending a list of confirmatory due diligence requests within 48 hours.
On November 3, 2020, the parties executed the Exclusivity Agreement, which provided for a 30-day exclusivity period that would be automatically extended unless terminated by either party upon one business days’ notice, provided that the Exclusivity Agreement would be earlier terminated upon entry by the parties into a definitive transaction agreement or at such time as any Centene representative indicated to any Company representative that Centene is no longer pursuing or interested in an acquisition of the Company at a per share price equal to or greater than $95.00. Following execution of the Exclusivity Agreement, representatives of Goldman Sachs and Guggenheim Securities engaged in discussions with Centene’s financial advisors regarding the next stage of the process and related matters.
On November 5, 2020, representatives of Weil sent representatives of Skadden a draft clean room agreement (which we refer to as the “Clean Room Agreement”) to govern the exchange of, and implement procedures to protect, certain competitively sensitive information of the Company. From November 5, 2020 through November 7, 2020, Skadden and Weil exchanged multiple drafts of the Clean Room Agreement, which was executed with effect as of November 7, 2020.
On November 12, 2020, Magellan provided Centene and its advisors with access to an electronic data room, including a designated “clean room” pursuant to the Clean Room Agreement, containing certain non-public information regarding the Company.
Throughout the remainder of November and until the execution of the Merger Agreement on January 4, 2021, representatives of Centene engaged in a due diligence review of the Company. In connection with Centene’s due diligence review, representatives of the Company, including members of the Company’s senior management, and representatives of the Company’s financial and/or legal advisors, as applicable, participated in multiple due diligence and follow-up diligence calls with representatives of Centene during this period.
Also on November 12, 2020, due to Centene’s belief that there had been delays in its receipt of certain requested due diligence information, representatives of Skadden sent representatives of Weil a draft amendment to the
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Exclusivity Agreement, which amendment proposed to extend the initial term of the exclusivity period until December 31, 2020. The other terms of exclusivity, including automatic extension unless terminated by either party upon one business days’ notice, remained unchanged.
On November 17, 2020, Mr. Fasola reported to Mr. Neidorff and Mr. Hunter that, on November 13, 2020, the California Department of Health Care Services (which we refer to as “DHCS”) informed Magellan that DHCS intended to delay the implementation of the Medi-Cal PBA Agreement from January 1, 2021 to April 1, 2021 in order to better leverage Magellan’s workforce to bring to fruition certain aspects of the Medi-Cal PBA Agreement and to utilize such additional time to conduct enhanced outreach and education, which delay was announced publicly by DHCS on November 16, 2020. Mr. Fasola noted in this communication that DHCS had reiterated its commitment to the relationship with Magellan.
On November 18, 2020, Mr. Neidorff and Mr. Shulman spoke by telephone to discuss the terms of the exclusivity arrangement between the parties. On this call, Mr. Neidorff and Mr. Shulman agreed to the extension of exclusivity in additional one-week increments. In the evening of November 18, 2020, representatives of Skadden sent to representatives of Weil a revised draft amendment to the Exclusivity Agreement, pursuant to which termination of exclusivity would require seven business days’ notice from either party following the initial 30-day period. On November 19, 2020, the parties executed the amendment to the Exclusivity Agreement.
On November 20, 2020, Mr. Fasola met in-person with Mr. Neidorff and Sarah London, Senior Vice President, Technology Innovation & Modernization of Centene, in Addison, Texas. In connection with Centene’s anticipated expansion of payor services following consummation of the potential acquisition, Ms. London addressed a number of matters with Mr. Fasola, including innovation and required technology, IT leadership, employee retention risk and areas of perceived business gaps and capital deployment to advance the strategy related to recent and pending investments.
On November 23, 2020, Skadden sent an initial draft of the Merger Agreement for the proposed transaction to Weil. From November 23, 2020 until the execution of the Merger Agreement on January 4, 2021, the parties and their respective legal advisors exchanged numerous drafts, and engaged in numerous discussions and negotiations concerning the terms, of the Merger Agreement and certain ancillary documentation. During the course of these negotiations, significant areas of discussion and negotiation involved (1) Centene’s level of commitment to obtain regulatory approvals and Centene’s ability to control the related approval process and strategy, (2) the outside date after which either party could elect to terminate the Merger Agreement if the transaction had not been completed prior to such date, (3) the magnitude of the termination fee payable to Centene and the circumstances under which such fee would be payable, (4) the treatment of outstanding equity awards in connection with the transaction, (5) the obligations of the Company in connection with assisting Centene’s efforts regarding the financing for the transaction and possible refinancing of its indebtedness and the impact thereof on the timing of the transaction, (6) the scope of the representations, warranties and covenants, including the “no shop” provisions and the interim operating restrictions on the Company, (7) the Company’s ability to take certain actions with respect to employee compensation and benefits during the interim period and Centene’s commitments to continuing employees of Magellan for a limited period of time following the transaction and (8) the definition of “material adverse effect”.
On December 8, 2020, Mr. Haddock, another representative of Magellan and Christopher Koster, Senior Vice President, Secretary and General Counsel of Centene, as well as representatives of Weil and Skadden, participated in a teleconference regarding the scope, process and anticipated timing of certain state regulatory filings required in connection with the proposed transaction.
Also on December 8, 2020, and regularly thereafter until the execution of the Merger Agreement on January 4, 2021, Mr. Fasola and Mr. Hunter spoke by telephone regarding the progress of Centene’s diligence efforts, areas of remaining review and any perceived impediments to progressing the potential transaction. Such conversations typically addressed next steps for the respective parties.
Lastly, on December 8, 2020, representatives of Skadden sent to representatives of Weil a draft Merger Support Agreement proposed to be entered into by the Starboard Parties in connection with the proposed transaction in respect of, among other things, the voting of the Starboard Parties’ shares of Magellan common stock in favor of adoption of the Merger Agreement. On December 23, 2020, Magellan provided the draft Merger Support Agreement to Starboard.
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On December 9, 2020, Mr. Fasola provided Mr. Shulman, members of Magellan management and the Company’s legal and financial advisors with a written update regarding the anticipated timing of the closing of the MCC Business Sale. Mr. Fasola reported that the consummation of the MCC Business Sale would occur on December 31, 2020. On the same day, Mr. Fasola and Mr. Shulman updated Mr. Hunter and Mr. Neidorff, respectively, regarding the expected closing date for the MCC Business Sale.
On December 10, 2020, the Board, with members of the Company’s management and representatives of Goldman Sachs, Guggenheim Securities and Weil in attendance, held a meeting to discuss the potential transaction with Centene. Mr. Fasola first apprised the Board of the anticipated December 31, 2020 closing date for the MCC Business Sale and, consequently, the targeted announcement of a proposed execution of the Merger Agreement with Centene during the first week of January 2021. Mr. Fasola, together with the representatives of Goldman Sachs and Guggenheim Securities, provided an update on the status of negotiations, including ongoing conversations regarding regulatory approvals and the continued engagement and in-depth nature of Centene’s diligence review. Representatives of Goldman Sachs and Guggenheim Securities reviewed with the Board market conditions, the performance of Magellan’s share price since November 1, 2020, the date the Board authorized the execution of the Exclusivity Agreement based upon the November 1 proposal, and the implied premia of the November 1 proposal of $95.00 per share to current trading and selected volume-weighted average prices of the Magellan stock. Based on the closing share price of $79.81 on December 9, 2020, the November 1 proposal represented a 19% premium to the current Magellan stock price and a 19.8% premium over the volume-weighted average Magellan stock price for the 30 full consecutive trading days ending on December 9, 2020. The Board engaged in a discussion concerning the transaction price, concluding that Mr. Fasola and Mr. Shulman should address the topic of a per share price increase with Centene when Centene was closer to completion of due diligence. Weil then provided the Board with an overview of the status of certain key terms under discussion in connection with the Merger Agreement, including the efforts that Centene would be required to use to obtain regulatory approvals for the transaction, the definition of “material adverse effect”, the “marketing period” for Centene’s transaction financing, the ability to extend the outside date to close the transaction in connection with regulatory approvals, and the fees payable to Centene, and the size thereof, upon certain terminations of the Merger Agreement. Following these discussions, the Board determined that the Company should continue to pursue a potential transaction with Centene to determine whether a transaction could be finalized on acceptable terms.
During the period from December 10, 2020 to December 22, 2020, Magellan and Centene, together with their respective advisors, continued to progress the work necessary to reach agreement on and to enter into definitive transaction documentation, including targeted diligence calls and preparation of revised Merger Agreement drafts, and discussions regarding certain provisions of the Merger Agreement.
On December 22, 2020, representatives of Weil and Skadden held a telephone call during which Skadden informed Weil that it was important to Centene that certain Magellan executives, including Mr. Fasola, enter into employment letter agreements with Centene in connection with the signing of the Merger Agreement.
On December 23, 2020, Mr. Fasola called each of Mr. Neidorff and Mr. Hunter to request an increased transaction price, noting that Magellan’s share price had increased during the period of due diligence and negotiation of definitive transactions agreements. Mr. Fasola emphasized that the Board was expecting an increase in the per share transaction price to reflect such share price increase. Mr. Neidorff responded that such conversations were premature and that Centene and Magellan should discuss any change in price the following week.
On December 24, 2020, Mr. Shulman called Mr. Neidorff to reiterate the reasons conveyed by Mr. Fasola for an increase in the transaction price, as well as the expectation of the Board that Centene would agree to such an increase.
Also on December 24, 2020, Mr. Fasola provided a written update to the Board regarding the status of the potential transaction. In his update, Mr. Fasola noted that Centene had asked Magellan to set a target date of January 4, 2021 to announce the execution of a definitive agreement by the parties and that he and Mr. Shulman would continue negotiations with Centene regarding a higher transaction price in order to present a revised offer to the Board for consideration at the Board meeting scheduled for December 30, 2020. Mr. Fasola also outlined areas of risk or underperformance that Centene had identified as reasons that an increased price proposal might not be warranted.
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On December 26, 2020, representatives of Weil sent representatives of Skadden a draft of the Company’s disclosure schedule to the Merger Agreement. From December 26, 2020 through the execution of the Merger Agreement on January 4, 2021, Weil and Skadden exchanged multiple drafts of, and participated in several discussions regarding, the Company’s disclosure schedule and various exhibits to the Merger Agreement.
On December 29, 2020, Mr. Fasola, Mr. Hunter and Colin Toney, Senior Vice President, Enterprise Group Strategy of Centene, spoke regarding the status of Centene’s due diligence review and remaining areas of inquiry. During this conversation, Mr. Hunter asked Mr. Fasola whether points of information remained outstanding from Centene in advance of Magellan’s Board meeting scheduled for December 30, 2020. Mr. Fasola stated again that Magellan had requested, and was waiting for a response regarding, an increased offer price to reflect the recent increase in the trading prices of the Magellan stock, which the Board would be focused on at the meeting.
On December 30, 2020, the Board held a meeting with members of management of Magellan and representatives of Goldman Sachs, Guggenheim Securities and Weil in attendance. Mr. Fasola reported to the Board on his conversations with Mr. Neidorff and Mr. Hunter regarding the request for a revised proposal reflecting an increased transaction price. Mr. Fasola informed the directors that Centene had not submitted a revised proposal in response to such request. Mr. Fasola then shared an update regarding Centene’s due diligence efforts and noted a limited number of outstanding high priority items. Representatives of Goldman Sachs and Guggenheim Securities next reviewed with the Board their respective updated preliminary financial analyses related to a transaction with Centene. Goldman Sachs and Guggenheim Securities also discussed with the Board the likelihood of any potential alternative counterparties interested in acquiring Magellan at a per share price in excess of $95.00. Weil then provided the Board with a review of the Board’s fiduciary duties and discussed certain key terms that were under discussion, including, among certain others, the size of the termination fee, the events that would trigger the requirement for the Company to pay the termination fee, Centene’s request to receive reimbursement of its expenses upon a “no vote” by the Magellan stockholders and proposed restrictions on Centene’s acquisition activity prior to consummation of the transaction. In addition, Weil advised the Board that Centene had expressed a desire to negotiate offers of employment with certain Magellan executives, but that to date no Magellan executives had been authorized to discuss future employment opportunities or terms with Centene. The Board, upon consideration and discussion of the information presented and reviewed, authorized and requested Mr. Fasola and Mr. Shulman to continue to engage in negotiations with Mr. Neidorff regarding transaction price. The Board also advised that it would not authorize any members of management to engage in discussions with Centene regarding employment until an agreement on the transaction price and other material terms for the transaction had been finalized.
On the morning of December 31, 2020, the MCC Business Sale was consummated. A representative of Weil advised a representative of Skadden of this development later that day.
Throughout the day on December 31, 2020, Mr. Fasola and Mr. Shulman had several discussions with Mr. Neidorff regarding transaction price. Mr. Neidorff informed Messrs. Fasola and Shulman that Centene would not increase its $95.00 per share proposal and that, to the contrary, Centene had been considering decreasing its offer price. In the afternoon on December 31, 2020, following the discussions with Mr. Neidorff, Mr. Fasola convened an unscheduled teleconference with several available Board members to provide an update on the discussions regarding transaction price.
Also in the afternoon on December 31, 2020, Mr. Fasola spoke with Mr. Hunter to discuss his earlier conversations with Mr. Neidorff, including Mr. Neidorff’s suggestion that Centene was considering a proposal to decrease the transaction price. Mr. Hunter called Mr. Fasola subsequently and reconfirmed Centene’s interest in a proposed acquisition of Magellan at a transaction price of $95.00 per share. However, Mr. Hunter requested a prompt response from Magellan confirming its intention to continue pursuing a proposed transaction with Centene at such price in order to complete all open items in time for a January 4, 2021 announcement.
In the evening on January 1, 2021, a meeting of the Board was held, with members of management of Magellan and representatives of Goldman Sachs, Guggenheim Securities and Weil in attendance, to provide an update regarding the proposed transaction. Mr. Fasola reported to the Board that Centene had reaffirmed its best and final offer of $95.00 per share in cash, as set forth in the November 1 proposal. At the request of members of the Board, Mr. Fasola also provided his view on Magellan’s outlook in the near- and longer-term. The Board and representatives of Goldman Sachs and Guggenheim Securities engaged in a discussion of the longer-term strategies and near-term risks that might negatively impact Magellan’s stock price. The Board reached consensus
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and unanimously authorized Mr. Fasola and Mr. Shulman to continue to finalize the documentation of a transaction based on Centene’s offer of $95.00 per share. The Board further directed Messrs. Fasola and Shulman, in connection with affirming the Board’s approval of the $95.00 offer price, to seek to obtain Centene’s agreement with respect to the open items in the Merger Agreement relating to (1) the reduction in the size of the termination fee that could be due and owing to Centene under certain circumstances, (2) the deletion of a “no vote” expense reimbursement provision in the event the Magellan stockholders fail to approve the adoption of the Merger Agreement, and (3) inclusion of a “clear markets provision” prohibiting Centene from entering into strategic transactions that would reasonably be expected to prevent the consummation of the proposed transaction by the outside date.
In the morning on January 2, 2021, Mr. Fasola detailed in an email to Mr. Hunter the terms endorsed by the Board. Mr. Shulman also contacted Mr. Neidorff regarding these terms. Messrs. Neidorff and Shulman subsequently agreed to a termination fee in an amount equal to $76,530,000, or approximately 3% of the equity value of Magellan based on the offer price of $95.00 per share and the exclusion of the “no vote” expense reimbursement provision and inclusion of the “clear markets provision” sought by Magellan.
On January 2, 2021, representatives of Skadden sent representatives of Weil a draft employment letter agreement for Mr. Fasola (which we refer to as the “Fasola Letter Agreement”), to be effective upon the consummation of the potential transaction. Weil forwarded the Fasola Letter Agreement draft to Mr. Fasola and his counsel and during the period from January 2, 2021 to January 4, 2021, Mr. Fasola and his counsel exchanged drafts of, and participated in discussions regarding, the Fasola Letter Agreement with representatives of Centene, including Mr. Neidorff, and Skadden.
Also on January 2, 2021, on behalf of the Starboard Parties and their counsel, representatives of Weil shared with representatives of Skadden comments to the draft Merger Support Agreement. From January 2, 2021 through the execution of the Merger Agreement on January 4, 2021, Skadden and counsel to the Starboard Parties exchanged drafts of the Merger Support Agreement.
During the period from January 2, 2021 through the execution of the Merger Agreement on January 4, 2021, representatives of Magellan and Centene and their respective legal counsel, Weil and Skadden, continued to work to finalize the definitive documentation for the potential transaction.
In the evening on January 3, 2021, a meeting of the Board was held for the purpose of consideration of the approval and adoption of the Merger Agreement with Centene. Representatives of Goldman Sachs, Guggenheim Securities and Weil, as well as members of management of Magellan, were in attendance. Mr. Fasola and Mr. Shulman provided the Board with an update on discussions with Centene and the resolutions of the open issues in the Merger Agreement. At the meeting, Mr. Shulman and Mr. Fasola reviewed with the Board the status of the Fasola Letter Agreement as presented by Centene and reported on certain modifications that were being sought by Mr. Fasola, which remained open items in the negotiations. The Board discussed with Messrs. Shulman and Fasola these outstanding items and Centene’s position that the terms of Mr. Fasola’s Letter Agreement needed to be finalized and agreed to prior to Centene’s execution of definitive agreements for the potential transaction. The Board discussed alternatives to proceeding with the transaction with Centene, including strategic plans for capital deployment if Magellan remained an independent company on a standalone basis. The Board then considered and expressed their views regarding the advantages of the proposed transaction. Representatives of Goldman Sachs presented to the Board a financial analysis with respect to the proposed transaction. Representatives of Goldman Sachs then rendered to the Board an oral opinion, subsequently confirmed in a written opinion dated as of January 4, 2021, to the effect that, as of the date of its written opinion, and based upon and subject to the factors and assumptions set forth in its written opinion, the $95.00 per share of Magellan common stock to be paid to the holders (other than Centene and its affiliates) of outstanding shares of Magellan common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. Representatives of Guggenheim Securities then presented to the Board a financial analysis with respect to the proposed transaction. A representative of Guggenheim Securities then rendered an oral opinion, which was confirmed by delivery of a written opinion, to the Board to the effect that, as of January 4, 2021 and based upon and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the Merger Consideration was fair, from a financial point of view, to the holders of shares of Magellan common stock.
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During the meeting, the Board was informed that the financial forecasts provided to Goldman Sachs and Guggenheim Securities and approved by Magellan management for use in their financial analyses had been revised by management from those last provided to Centene and previously discussed with the Board to take into account the delay in implementation of the Medi-Cal PBA Agreement, significant scope reduction of an additional PBM contract and the non-renewal of another PBM contract (which financial forecasts we refer to as the “January 2021 Forecasts” in the section of this proxy statement entitled “—Certain Forecasts”), each of which had been disclosed to and discussed with Centene during its due diligence review. Following discussion, the Board unanimously approved and declared advisable the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement, determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and its stockholders, directed that the Merger Agreement be submitted to the stockholders of the Company for adoption and resolved to recommend that the stockholders of the Company adopt the Merger Agreement. During the meeting, the Board also voted to adopt an amendment to the Company’s bylaws to provide that the Court of Chancery in the State of Delaware will be the exclusive forum for the adjudication of certain disputes involving Magellan and federal district courts of the United States of America will be the exclusive forum for the adjudication of litigation arising under the Securities Act of 1933, as amended.
In the early morning on January 4, 2021, each of Magellan, Centene and Merger Sub executed and delivered the Merger Agreement and Centene and the Starboard Parties executed and delivered the Merger Support Agreement. Magellan and Centene issued a joint press release announcing the proposed transaction and entry into the Merger Agreement.
Recommendation of the Board
At a meeting of the Board on January 3, 2021, after careful consideration, including detailed discussions with Magellan’s management and its legal and financial advisors, the Board unanimously:
approved and declared advisable the Merger Agreement and the consummation of the Merger and the other transactions contemplated thereby;
determined that the terms of the Merger Agreement; the Merger and the other transactions provided for in the Merger Agreement are fair to, and in the best interests of, the Company and its stockholders;
directed that the Merger Agreement be submitted to the Company stockholders for adoption; and
resolved to recommend that the stockholders of the Company adopt the Merger Agreement.
Reasons for Recommending the Adoption of the Merger Agreement
At a meeting held on January 3, 2021, the Board unanimously approved and declared advisable the Merger Agreement and the consummation of the Merger and the other transactions contemplated thereby. The Board unanimously recommends that the Magellan stockholders adopt the Merger Agreement.
In arriving at this determination and recommendation, the Board reviewed and discussed a significant amount of information and consulted with Magellan’s management, legal counsel and financial advisors. The following are some of the significant factors that were considered by the Board and supported its decision to approve the Merger Agreement and recommend that the Magellan stockholders adopt the Merger Agreement (not necessarily in order of relative importance):
Merger Consideration. The Board considered that the Merger Consideration represented:
a 14.7% premium over the per share closing price of Magellan’s common stock on December 31, 2020, the last trading day prior to the execution of the Merger Agreement (which we refer to as the “12/31 closing price”); a 24.8% premium over what the Board considered to be the Company’s per share “net equity” on December 31, 2020, (i.e., the 12/31 closing price net of the estimated per share after-tax cash proceeds received in the MCC Business Sale), calculated by deducting from both the Merger Consideration and the 12/31 closing price the estimated per share after-tax cash proceeds received in the MCC Business Sale; and an 18.3% premium over the Company’s volume-weighted average share price for the 30 full consecutive trading days prior to the date of the Merger Agreement;
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the best and final offer of Centene, in the view of the Board and Magellan’s financial advisors, and the highest consideration payable to Magellan stockholders that was reasonably obtainable; and
a price per share that, in the Board’s view, was unlikely to be achieved on a standalone basis in the near future.
Prospects of Magellan.
the Board considered the possibility of continuing to operate Magellan as an independent entity and the desirability and perceived risks of continuing to execute on its business plan, the potential benefits to Magellan stockholders of this alternative and the time horizon required for the business plan to yield improved financial and market performance by the Company;
the Board considered Magellan’s standalone business plan, financial forecasts and the risks associated with Magellan’s ability to execute on and achieve such business plan and forecasts, including execution risks associated with implementing planned-on initiatives across new partnerships and product introductions, sales efforts and business transformations;
the Board considered the significant financial investments that would be required to execute on its business plan, including the timing thereof;
the Board considered certain industry trends and the potential risks and volatility associated with these developments, including larger pharmacy management companies increasing competition in the middle market, rebate and other regulatory developments leading to margin erosion and insourcing risk, particularly in the behavioral health market; and
the Board also considered the fact that certain investments in and acquisitions of unaffiliated third parties were contemplated as part of the business plan and in that regard considered the potential of limited opportunities on financially attractive terms.
Cash Consideration; Certainty of Value. The Board considered the fact that the Merger Consideration is a fixed cash amount providing Magellan stockholders with certainty of value and liquidity immediately upon the closing of the Merger, in comparison to the risks and uncertainty that would be inherent in remaining a standalone company or pursuing a transaction in which all or a portion of the consideration would be payable in stock.
Opinion of Goldman Sachs. The Board considered the oral opinion of Goldman Sachs, subsequently confirmed in a written opinion dated as of January 4, 2021, to the effect that, as of the date of its written opinion, and based upon and subject to the factors and assumptions set forth in its written opinion, the $95.00 in cash per share of Magellan common stock to be paid to the holders (other than Centene and its affiliates) of the shares of Magellan common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders, as more fully described in the section entitled “—Opinion of Goldman Sachs & Co. LLC” beginning on page 48 and Annex C to this proxy statement.
Opinion of Guggenheim Securities. The Board considered the financial presentation and the opinion, dated as of January 4, 2021, of Guggenheim Securities to the Board as to the fairness, from a financial point of view and as of the date of the opinion, of the Merger Consideration to the holders of shares of Magellan common stock, which opinion was based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken as more fully described under the section entitled “—Opinion of Guggenheim Securities, LLC” beginning on page 55 and Annex D to this proxy statement.
2019 Sales Process: The Board considered the Broad Outreach and related lengthy and broad sales process conducted by the Company that concluded in the fall of 2019 that resulted in only one potentially interested party indicating an interest in acquiring all of the Company, with such indication being at a per share price that was substantially below the Merger Consideration, and which process terminated due to the Company’s inability to reach satisfactory terms with any potential counterparty. For additional details, please see the section of this proxy statement entitled “—Background of the Merger.”
Negotiations with Centene and the Merger Agreement. The Board considered the general terms and conditions of the Merger Agreement (which are described in more detail in the section of this proxy statement entitled “The Merger Agreement”), including:
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the ability of the parties to consummate the Merger, including the fact that Centene’s and Merger Sub’s obligations to complete the Merger are not conditioned upon the receipt of financing;
the significant commitment by Centene to obtain the HSR Act Clearance and the required consents and the belief of the Board that the transaction does not present significant apparent regulatory concerns that would impact the ability of the parties to complete the Merger;
the belief of the Board that the outside date (as it may be extended under the Merger Agreement) provides the parties with sufficient time to obtain the HSR Act Clearance and the required consents;
Magellan’s ability, under certain circumstances, to furnish information and conduct negotiations with third parties regarding unsolicited alternative acquisitions proposals, including that, although standstill restrictions under six confidentiality agreements entered into or amended in connection with the Broad Outreach and/or the exploration of the MCC Business Sale remained in effect in accordance with their terms following the execution and delivery of the Merger Agreement, five of which standstill restrictions prohibited the making of confidential proposals to the Board, Magellan would be permitted to waive such standstill restrictions in certain circumstances to the extent necessary to permit the counterparty to make a confidential alternative acquisition proposal to the Board;
Magellan’s ability, under certain circumstances, to change its recommendation that stockholders adopt the Merger Agreement in the event that the Company receives a superior proposal or certain other intervening events occur;
Magellan’s ability to terminate the Merger Agreement in order to accept a superior proposal, subject to Centene’s ability to negotiate to match such superior proposal and subject to paying a termination fee of $76,530,000;
the fact that the Board believed that the termination fee of $76,530,000 is reasonable (in part because of the Board’s belief that the amount of such termination fee is generally consistent with the amount of termination fees in comparable transactions) and not preclusive of other offers;
Magellan’s general entitlement to specific performance to prevent breaches of the Merger Agreement;
that the Merger Agreement is subject to the adoption by Magellan stockholders, which, in the Board’s view, would allow sufficient time for a third party to make a superior proposal to acquire Magellan if it desires to do so;
that the Merger Agreement is subject to the adoption by the holders of a majority of the outstanding shares of Magellan common stock and the Board’s belief that Magellan’s directors and executive officers do not own a significant enough interest in Magellan common stock, in the aggregate, to influence substantially the outcome of such vote; and
the Board’s view that the Merger Agreement was the product of arms’-length negotiation and contained customary terms and conditions.
Timing of Completion. The Board considered the anticipated timing of the consummation of the transactions contemplated by the Merger Agreement and the structure of the transaction as a Merger and concluded that the Merger could be completed in a reasonable timeframe and in an orderly manner. The Board also considered that the potential for closing the Merger in a reasonable timeframe could reduce the period during which Magellan’s business would be subject to the potential uncertainty of closing and related disruption.
Availability of Appraisal Rights. The Board considered the availability of appraisal rights under Delaware law to Magellan’s stockholders who do not vote in favor of the adoption of the Merger Agreement and who otherwise comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have the Court of Chancery of the State of Delaware determine the fair value of their shares of Magellan common stock, which may be more than, less than or the same as the amount such stockholders would have received under the Merger Agreement.
In the course of its deliberations, the Board also considered certain risks and other potentially negative factors concerning the transactions contemplated by the Merger Agreement, including:
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the fact that, following the Merger, Magellan will no longer exist as an independent public company and Magellan’s existing stockholders will not participate in Magellan’s or Centene’s future earnings or growth or benefit from any synergies resulting from the consummation of the transactions contemplated by the Merger Agreement;
the fact that the Merger Agreement precludes Magellan from soliciting alternative proposals;
the fact that the Merger might not be consummated in a timely manner or at all, as a result of a failure to satisfy certain conditions, including the approval by Magellan’s stockholders and the condition requiring the expiration or termination of the waiting period (or any extension thereof, including any agreement between a party and a governmental authority not to consummate the transaction before a certain date) under the HSR Act and the making or receipt, respectively, of certain required regulatory filings and consents;
the restrictions on the conduct of Magellan’s business prior to the consummation of the Merger, which may delay or prevent Magellan from undertaking business opportunities that may arise or any other action that it might otherwise take with respect to the operations of Magellan;
the fact that, for U.S. federal income tax purposes, the Merger Consideration will be taxable to Magellan’s stockholders who are entitled to receive such consideration;
the significant costs involved in connection with entering into and completing the Merger and the substantial time and effort of management required to complete the transactions contemplated by the Merger Agreement, which may disrupt Magellan’s business operations;
the risks and contingencies related to the announcement and pendency of the transactions contemplated by the Merger Agreement, including the impact on Magellan’s employees and its relationships with existing and prospective customers, suppliers and other third parties;
the requirement that Magellan pay Centene a termination fee equal to $76,530,000 if the Merger Agreement is terminated under certain circumstances;
the risk that, while the Merger is expected to be completed, there can be no assurance that all conditions to the parties’ obligations to complete the Merger will be satisfied, and as a result, it is possible that the Merger may not be completed even if approved by Magellan’s stockholders;
the fact that Magellan’s directors and executive officers may receive certain benefits that are different from, and in addition to, those of Magellan’s stockholders (See “The Merger—Interests of Directors and Executive Officers in the Merger”);
the other risks described in and incorporated by reference in this proxy statement, see “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2019 (as updated by subsequent quarterly reports on Form 10-Q) incorporated by reference herein and “Cautionary Information Regarding Forward-Looking Statements.”
The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive, but includes the material factors considered by the Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The Board did not undertake to make any specific determination as to whether, or to what extent, any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Board based its recommendation on the totality of the information presented, including the factors described above.
Certain Forecasts
Although the Company periodically provides guidance regarding its financial performance for the then-current and following fiscal year, the Company does not publicly disclose other financial forecasts given, among other reasons, the uncertainty, unpredictability and subjectivity of these forecasts and the associated underlying
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assumptions. The Company’s senior management does prepare certain internal multi-year financial forecasts, estimates and other financial and operating data relating to the Company on an annual basis, which are typically presented to the Board at the Company’s regularly scheduled second quarter Board meeting.
On July 24, 2020, the Company provided to Centene financial forecasts for fiscal years 2020 through 2024 (we refer to such forecasts as the “July 2020 Forecasts”).
At a meeting of the Board held on October 27, 2020, in connection with the consideration of a potential transaction with Centene, the July 2020 Forecasts, adjusted by the Company’s management to include a small contingency to account for unspecified risks that could adversely affect the achievement of certain financial results (we refer to such forecasts as the “October 2020 Forecasts”), were presented to the Board.
In late December 2020 and early January 2021, in connection with the Merger, the Company’s management prepared revisions to the October 2020 Forecasts to take into account the delay in implementation of the Medi-Cal PBA Agreement, significant scope reduction of an additional PBM contract and the non-renewal of another PBM contract, each of which development had been disclosed to and discussed with Centene during its due diligence review (we refer to such forecasts as the “January 2021 Forecasts” and, together with the July 2020 Forecasts and October 2020 Forecasts, the “Company Forecasts”). The Company Forecasts exclude the MCC Business. The January 2021 Forecasts were reviewed by the Board during a meeting held on January 3, 2021. The Company’s management believed that the January 2021 Forecasts appropriately reflected the known and potential impact of the occurrences incorporated therein. The January 2021 Forecasts were made available to the Board for use in its evaluation of the Merger and also were provided to Goldman Sachs and Guggenheim Securities, which were directed by the Company’s management to use and rely only upon the January 2021 Forecasts for purposes of their financial analyses and fairness opinions.
Notwithstanding the fact that (i) the Board no longer believes certain assumptions underlying the July 2020 Forecasts and the October 2020 Forecasts reflect the Company’s prospects due to the developments described above, and did not rely on the July 2020 Forecasts or the October 2020 Forecasts in approving the Merger Agreement and (ii) at the direction of the Company’s management, neither Goldman Sachs nor Guggenheim Securities, both of which received the July 2020 Forecasts and the October 2020 Forecasts, used or relied on the July 2020 Forecasts or the October 2020 Forecasts for purposes of their respective financial analyses and fairness opinions, a summary of the July 2020 Forecasts and October 2020 Forecasts are being included in this proxy statement only to give Magellan stockholders access to certain non-public information previously made available to the Board, Goldman Sachs, Guggenheim Securities and Centene, as and to the extent described above.
The following table presents a summary of the July 2020 Forecasts prepared by the Company’s management as described above:
($ in millions)
2020E
2021E
2022E
2023E
2024E
Revenue
$4,565
$4,962
$ 5,408
$5,753
$6,160
Segment Profit(1)
$ 184.8
$ 244.5
$ 298.0
$ 327.3
$ 363.1
(1)
Segment Profit is a non-GAAP measure that the Company defines as profit or loss from operations, before stock compensation expense, depreciation and amortization, interest expense, interest and other income, changes in the fair value of contingent consideration recorded in relation to acquisitions, gain on sale of assets, special charges or benefits, and income taxes. For purposes of fiscal year 2020 only, Segment Profit excludes the impact of stranded overhead expenses related to the MCC Business in connection with the MCC Business Sale.
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The following table presents a summary of the October 2020 Forecasts prepared by the Company’s management as described above:
($ in millions, except for per share amounts)
2020E
2021E
2022E
2023E
2024E
Revenue
$4,578
$4,960
$5,406
$5,750
$ 6,157
Segment Profit(1)
$155.8
$ 235.0
$ 287.5
$ 316.8
$ 352.6
EBITDA(2)
$131
$208
$254
$284
$317
EPS
$0.37
$2.42
$3.93
$4.52
$5.59
Adjusted EPS(3)
$3.05
$4.24
$4.71
$5.75
Unlevered Free Cash Flow(4)
$188
$111
$133
$152
(1)
Segment Profit is a non-GAAP measure that the Company defines as profit or loss from operations, before stock compensation expense, depreciation and amortization, interest expense, interest and other income, changes in the fair value of contingent consideration recorded in relation to acquisitions, gain on sale of assets, special charges or benefits, and income taxes.
(2)
EBITDA is a non-GAAP measure that the Company defines as Segment Profit, less stock compensation expense.
(3)
Adjusted EPS is a non-GAAP measure that the Company defines as adjusted net income per common share attributable to the Company on a diluted basis. Adjusted EPS reflects certain adjustments made for acquisitions completed after January 1, 2013 to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles, as well as impairment of identified acquisition intangibles, and, for purposes of fiscal year 2020 only, special charges and any impact related to the MCC Business Sale.
(4)
Unlevered Free Cash Flow is a non-GAAP measure defined as EBITDA minus tax expense and capital expenditures, adjusted for projected working capital changes, the net proceeds from the MCC Business Sale and collections stemming from the Company’s wind down of its Medicare Part D prescription drug plan business.
The following table presents a summary of the January 2021 Forecasts prepared by the Company’s management as described above:
($ in millions, except for per share amounts)
Q4 2020E
2020E
2021E
2022E
2023E
2024E
Revenue
$1,185
$4,578
$4,882
$5,233
$5,535
$5,942
Segment Profit(1)
$23.1
$155.8
$ 225.6
$ 274.4
$ 297.8
$ 335.4
EBITDA(2)
$16
$131
$199
$241
$265
$300
EPS
$0.37
$2.18
$3.59
$4.05
$5.18
Adjusted EPS(3)
$2.84
$3.92
$4.25
$5.34
Unlevered Free Cash Flow(4)
$1,058
$38
$132
$122
$140
(1)
Segment Profit is a non-GAAP measure that the Company defines as profit or loss from operations, before stock compensation expense, depreciation and amortization, interest expense, interest and other income, changes in the fair value of contingent consideration recorded in relation to acquisitions, gain on sale of assets, special charges or benefits, and income taxes.
(2)
EBITDA is a non-GAAP measure that the Company defines as Segment Profit, less stock compensation expense.
(3)
Adjusted EPS is a non-GAAP measure that the Company defines as adjusted net income per common share attributable to the Company on a diluted basis. Adjusted EPS reflects certain adjustments made for acquisitions completed after January 1, 2013 to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles, as well as impairment of identified acquisition intangibles, and, for purposes of fiscal year 2020 only, special charges and any impact related to the MCC Business Sale. For purposes of its analysis and opinion, Guggenheim used Adjusted EPS for calendar year 2021E of $2.80, reflecting adjustment, at the direction of the Company’s management, to exclude interest income associated with proceeds from the MCC Business Sale.
(4)
Unlevered Free Cash Flow is a non-GAAP measure defined as EBITDA minus tax expense and capital expenditures, adjusted for projected working capital changes, the net proceeds from the MCC Business Sale, the impact of the investments made by the Company in December 2020 and collections stemming from the Company’s wind down of its Medicare Part D prescription drug plan business.
The inclusion of the Company Forecasts in this proxy statement should not be regarded as an indication that any of the Company, Centene or any other recipient of this information considered, or now considers, them necessarily predictive of actual future results or material information given the inherent risks and uncertainties associated with such forecasts.
Although presented with numeric specificity, the Company Forecasts are subjective in many respects and, thus, subject to interpretation. The Company Forecasts were based on numerous variables, estimates and assumptions made by Company management at the time prepared, including with respect to industry performance and competition, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company, including the factors listed under “Risk Factors” set forth in the Company’s Annual Report on Form 10-K (as updated by subsequent Quarterly Reports on Form 10-Q, all of
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which are filed with the SEC and incorporated by reference into this proxy statement), all of which are difficult to predict and many of which are beyond the Company’s control. Therefore, the Company cannot provide any assurance that the assumptions underlying the Company Forecasts will be realized.
Many of the assumptions reflected in the Company Forecasts are subject to change and the Company Forecasts do not reflect revised prospects for the Company’s business, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time such financial information was prepared. The Company has not updated and does not intend to update or otherwise revise the Company Forecasts. There can be no assurance that the results reflected in the Company Forecasts will be realized or that actual results will not materially vary from the Company Forecasts. In addition, the Company Forecasts cover multiple years and such information by its nature becomes less predictive with each successive year. Therefore, you should not place undue reliance on the Company Forecasts included in this proxy statement as necessarily predictive of actual future events nor construed as financial guidance.
Magellan stockholders are urged to review the Company’s most recent SEC filings for a description of risk factors with respect to the Company’s business. You should read the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” for additional information regarding the risks inherent in forward-looking information such as the Company Forecasts and “Where You Can Find More Information”.
The Company Forecasts were not prepared with a view toward complying with U.S. General Accepted Accounting Principles (which we refer to as “GAAP”) (including because certain metrics are non-GAAP measures, and the forecasts contained therein do not include footnote disclosures as may be required by GAAP), the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the Company Forecasts, nor have they expressed any opinion or any other form of assurance on the Company Forecasts or the achievability of the results reflected in the Company Forecasts, and they assume no responsibility for, and disclaim any association with, the Company Forecasts. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures such as those used in the Company Forecasts may not be comparable to similarly titled amounts used by other companies or persons.
For the reasons described above, readers of this proxy statement are cautioned not to place undue, if any, reliance on the Company Forecasts. The Company has not made any representation to Centene in the Merger Agreement concerning any of the Company Forecasts.
The information about the Company Forecasts set forth above does not give effect to the Merger and also does not take into account the effect of any failure of the Merger to be consummated.
THE COMPANY DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE COMPANY FORECASTS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH FORECASTS ARE NOT REALIZED.
Opinion of Goldman Sachs & Co. LLC
At a meeting of the Board, Goldman Sachs rendered to the Board its oral opinion, subsequently confirmed in its written opinion dated January 4, 2021, to the effect that, as of the date of Goldman Sachs’ written opinion, and based upon and subject to the factors and assumptions set forth in Goldman Sachs’ written opinion, the $95.00 in cash per share of Magellan common stock to be paid to the holders (other than Centene and its affiliates) of the shares of Magellan common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated January 4, 2021, which sets forth the assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken in connection with Goldman Sachs’ opinion, is attached to this proxy statement as Annex C and is incorporated herein by reference. The summary of Goldman Sachs’ opinion contained in this proxy statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion set forth as Annex C. Goldman Sachs’ advisory services and opinion were provided for the information and
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assistance of the Board in connection with its consideration of the Merger and the opinion does not constitute a recommendation as to how any holder of Magellan common stock should vote with respect to the Merger or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
the Merger Agreement;
annual reports to stockholders and Annual Reports on Form 10-K of the Company for the five years ended December 31, 2019;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its stockholders;
certain publicly available research analyst reports for the Company; and
certain internal financial analyses and forecasts for the Company prepared by its management, as approved for Goldman Sachs’ use by the Company (referred to in this section as the “January 2021 Forecasts” and which are summarized in the section entitled “Certain Forecasts” beginning on page 45).
Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company; reviewed the reported price and trading activity for the shares of Magellan common stock; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the healthcare industry; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.
For purposes of rendering its opinion, Goldman Sachs, with the consent of the Board, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, Goldman Sachs, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with the consent of the Board that the January 2021 Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and Goldman Sachs was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger would be obtained without any adverse effect on the Company or Centene or on the expected benefits of the Merger in any way meaningful to its analysis. Goldman Sachs assumed that the Merger would be consummated on the terms set forth in the Merger Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.
Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the Merger, or the relative merits of the Merger as compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of, or other business combination with, the Company or any other alternative transaction. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Centene and its affiliates) of the shares of Magellan common stock, as of the date of its opinion, of the $95.00 in cash per share of Magellan common stock to be paid to such holders pursuant to the Merger Agreement. Goldman Sachs did not express any view on, and its opinion does not address, any other term or aspect of the Merger Agreement or the Merger, or any term or aspect of any other agreement or instrument contemplated by the Merger Agreement or entered into or amended in connection with the Merger, including the fairness of the Merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the Merger, whether relative to the $95.00 in cash per share of Magellan common stock to be paid to the holders (other than
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Centene and its affiliates) of the shares of Magellan common stock pursuant to the Merger Agreement or otherwise. Goldman Sachs did not express any opinion as to the prices at which the shares of Magellan common stock would trade at any time or, as to the potential effects of volatility in the credit, financial and stock markets on the Company, Centene or the Merger, or as to the impact of the Merger on the solvency or viability of the Company or Centene or the ability of the Company or Centene to pay their respective obligations when they would come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of its opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of the opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Board in connection with its consideration of the Merger and such opinion does not constitute a recommendation as to how any holder of shares of Magellan common stock should vote with respect to the Merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.
Summary of Financial Analyses
The following is a summary of the material financial analyses presented by Goldman Sachs to the Board in connection with Goldman Sachs’ rendering to the Board of the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 31, 2020, the last completed trading day before public announcement of the Merger, and is not necessarily indicative of current market conditions.
Implied Premia and Multiples
Goldman Sachs calculated and compared the implied premia and implied multiples described below based on the $95.00 in cash per share of Magellan common stock to be paid to the holders (other than Centene and its affiliates) of the shares of Magellan common stock pursuant to the Merger Agreement:
Goldman Sachs calculated the implied premia represented by the $95.00 in cash per share of Magellan common stock relative to:
$82.84, the closing price of shares of Magellan common stock on December 31, 2020, the last completed trading day before Goldman Sachs rendered its opinion (which we refer to as the “Current Price”);
$87.52, the highest closing trading price of shares of Magellan common stock over the 52-week period ended December 31, 2020 (which we refer to as the “52-Week High”);
$80.29, the volume weighted average price (which we refer to as “VWAP”) of shares of Magellan common stock over the 30-trading-day period ended December 31, 2020 (which we refer to as the “30-Day VWAP”);
$79.42, the VWAP of the shares of Magellan common stock over the 60-trading-day period ended December 31, 2020 (which we refer to as the “60-Day VWAP”); and
$77.91, the VWAP of the shares of Magellan common stock over the 90-trading-day period ended December 31, 2020 (which we refer to as the “90-Day VWAP”).
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The results of these calculations and comparisons are as follows:
 
Implied Premium
Represented by the
$95.00 in cash per
Share of Magellan
common stock
Reference Price Per Share of Common Stock:
 
December 31, 2020 Closing Price of $82.84
14.7%
52-Week High of $87.52
8.5%
30-Day VWAP of $80.29
18.3%
60-Day VWAP of $79.42
19.6%
90-Day VWAP of $77.91
21.9%
In addition, Goldman Sachs calculated an implied equity value of the Company by multiplying the $95.00 in cash per share of Company common stock by the total number of fully diluted shares of Company common stock outstanding as of December 28, 2020, calculated using information provided by the Company’s management and the treasury stock method. Goldman Sachs then calculated an implied enterprise value of the Company by adding to the implied equity value it had calculated the Company’s net debt (defined for this purpose as the Company’s debt as of September 30, 2020, as reflected in the Company’s publicly available filings, less the Company’s unrestricted cash and short term investments balance as of September 30, 2020, as reflected in the Company’s publicly available filings, adjusted to include $932 million of net proceeds from the MCC Business Sale, $67 million of collections in November 2020 stemming from the Company’s wind down of the Medicare Part D prescription drug plan and to exclude $91 million in investments made by the Company in December 2020 and $32 million and $25 million of Medicare Part D prescription drug plan collections to be received by the Company in 2021 and 2022, respectively, as provided by Company management).
Using the foregoing, Goldman Sachs calculated the following multiples:
The implied enterprise value for the Company as a multiple of the estimated earnings before interest, taxes, depreciation and amortization (which we refer to as “EBITDA”) of the Company for calendar years 2021 and 2022, as reflected in the January 2021 Forecasts.
The $95.00 in cash per share of Magellan common stock as a multiple of estimated earnings per share (which we refer to as “EPS”) of the Company for calendar years 2021 and 2022, as reflected in the January 2021 Forecasts.
The results of these calculations and comparisons are as follows:
 
Multiples
Implied Enterprise Value as a Multiple of:
 
2021E EBITDA
11.1x
2022E EBITDA
9.1x
 
Multiples
Implied Price as a Multiple of:
 
2021E EPS
33.5x
2022E EPS
24.2x
Illustrative Discounted Cash Flow Analysis
Using the January 2021 Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on the Company to derive a range of illustrative present values per share of Magellan common stock.
Using discount rates ranging from 7.0% to 8.0%, reflecting estimates of the Company’s weighted average cost of capital, Goldman Sachs derived a range of illustrative enterprise values for the Company, by discounting to present value as of September 30, 2020, (a) the estimates of the unlevered free cash flow to be generated by the Company for the period from October 1, 2020 to December 31, 2024, as reflected in the January 2021 Forecasts, and (b) a range of illustrative terminal values for the Company, calculated by applying a range of terminal year EBITDA exit multiples of 6.5x to 8x to the Company’s estimated terminal year EBITDA as reflected in the
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January 2021 Forecasts (which analysis implied perpetuity growth rates ranging from negative 0.6% to 1.7%). Goldman Sachs derived such discount rates by application of the capital asset pricing model, which requires certain company-specific inputs, including the company’s target capital structure weightings, the cost of long-term debt, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The range of terminal year EBITDA exit multiples was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account historical next twelve months (which we refer to as “NTM”) enterprise value/EBITDA multiples for the Company over the past five years. For purposes of this analysis, Goldman Sachs used a mid-year discounting convention, except that Goldman Sachs used end of year discounting for the net proceeds from the MCC Business Sale and collections in November 2020 stemming from the Company’s wind down of its Medicare Part D prescription drug plan and the impact of the investments made by the Company in December 2020.
Goldman Sachs derived ranges of illustrative enterprise values for the Company by adding the ranges of present values it calculated for the unlevered free cash flow and illustrative terminal values, as described above. Goldman Sachs then subtracted from the range of illustrative enterprise values it had derived the Company’s net debt as of September 30, 2020 (defined for this purpose as the Company’s debt as of September 30, 2020, as reflected in the Company’s publicly available filings, less the Company’s unrestricted cash and short term investments balance as of September 30, 2020, as reflected in the Company’s publicly available filings), to derive a range of illustrative equity values for the Company. Goldman Sachs then divided the range of illustrative equity values by the implied total number of fully diluted shares of Magellan common stock as of December 28, 2020, based on the derived range of illustrative equity values, and calculated using information provided by Company management and the treasury stock method, to derive a range of illustrative present values per share of Magellan common stock of $85.55 to $100.89.
Illustrative Present Value of Future Share Price Analysis
Goldman Sachs performed an illustrative analysis to derive a range of illustrative present values per share of Magellan common stock, based on theoretical future prices calculated by Goldman Sachs for the shares of common stock.
Goldman Sachs derived a range of theoretical future values per share for the shares of Magellan common stock as of January 1 of each of 2022, 2023 and 2024 by applying illustrative NTM P/E multiples ranging from 16.0x to 24.0x to estimates of the EPS of the Company for each of 2022, 2023 and 2024 as reflected in the January 2021 Forecasts and assuming, per Company management, that the net proceeds from the MCC Business Sale would be used to repay debt at maturity. By applying a discount rate of 8.5%, reflecting an estimate of the Company’s cost of equity, Goldman Sachs discounted to present value, as of September 30, 2020, the theoretical future values per share it derived for each applicable year, to yield present values per share of Magellan common stock ranging from $56.61 to $98.30.
The illustrative NTM P/E multiples used in the foregoing analysis were derived by Goldman Sachs using its professional judgement and experience, taking into account historical NTM P/E multiples for the Company over the past five years. Goldman Sachs derived the discount rate used in the foregoing analysis by application of the capital asset pricing model, which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally.
Premia Paid Analysis
Goldman Sachs reviewed and analyzed, using publicly available data obtained from Thomson and DataStream, the premia paid in acquisitions of publicly traded healthcare companies (excluding biotech companies) in the United States (which we refer to as “Healthcare Acquisitions”) announced during the period from December 31, 2010 through December 31, 2020 in which the target company had an implied enterprise value of $1 billion to $5 billion. For each calendar year through December 31, 2020, Goldman Sachs calculated the premia of the price paid in all Healthcare Acquisitions announced during such period as well as in any all-cash Healthcare Acquisitions announced during such period, in each case, relative to the target company’s closing share price at the 1-trading day prior to the announcement of the transaction. For the entire period from December 31, 2010 through December 31, 2020, Goldman Sachs calculated the median, mean, 25th percentile and 75th percentile
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premia of the price paid in all Healthcare Acquisitions announced during such period as well as in any all-cash Health Acquisitions announced during such period, in each case, relative to the target company’s closing share price at the 1-trading day prior to the original announcement of the transaction. The following shows a summary of the results of the review:
 
Premium to
1-Trading Day
Entire Period – All Deals
 
Median
29.2%
Mean
35.2%
25th Quartile
15.4%
75th Quartile
55.4%
 
 
Entire Period – All-Cash Deals Only
 
Median
29.7%
Mean
36.0%
25th Quartile
17.7%
75th Quartile
58.2%
Based on its review of the foregoing data and its professional judgment and experience, Goldman Sachs applied a reference range of illustrative premia of 15%-60% (based on the average premia paid in the 25th percentile and 75th percentile of Healthcare Acquisitions announced in the entire period relative to the target company’s share price over the 1-trading day prior to the original announcement of the transaction) to the Current Price. This analysis resulted in a range of implied values per share of Magellan common stock of $95.27 to $132.54.
Selected Precedent Transactions Analysis
Goldman Sachs analyzed certain publicly available information relating to certain acquisition transactions announced since November 1, 2006 involving target companies in the behavioral health and pharmacy benefit management industry with a transaction value greater than $1 billion.
While none of the target companies in the selected transactions are directly comparable to the Company and none of the selected transactions are directly comparable to the proposed transaction, the target companies in the selected transactions are companies with certain operations that, for the purposes of analysis, may be considered similar to certain operations of the Company.
Using publicly available information, for each of the selected transactions, Goldman Sachs calculated the implied enterprise value of the applicable target company based on the consideration paid in the applicable transaction, as a multiple of the target company’s estimated EBITDA for the twelve month period ended prior to announcement of each applicable transaction (which we refer to as “LTM EBITDA”), as disclosed in public company filings and other publicly available information. The selected transactions and the implied enterprise value to LTM EBITDA multiples calculated for the transactions are set forth below.
Announced
Acquiror
Target
Enterprise Value /
LTM EBITDA
Dec-18
Centerbridge Partners
Civitas Solutions, Inc.
8.7x
Mar-18
Cigna Corporation
Express Scripts Holding Company
9.0x
Oct-17
Express Scripts Holding Company
eviCore healthcare
13.1x
Mar-15
OptumRx
Catamaran Corporation
17.1x
Oct-14
Acadia Healthcare Company, Inc.
CRC Health Group, Inc.
10.2x
Jul-11
Express Scripts Holding Company
Medco Health Solutions, Inc.
11.5x
May-10
Universal Health Services, Inc.
Psychiatric Solutions, Inc.
9.5x
Apr-09
Express Scripts Holding Company
WellPoint NextRx
11.7x
Nov-06
CVS Health Corporation
Caremark Rx, Inc.
13.3x
Based on the results of the foregoing calculations and Goldman Sachs’ analyses of the various transactions and its professional judgment and experience, Goldman Sachs applied a reference range of enterprise value to LTM EBITDA multiples of 9.5x to 13.5x (representing the 25th and 75th quartiles of the implied enterprise value to
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LTM EBITDA multiples calculated for the transactions as described above) to the Company’s estimated EBITDA for the Company’s fiscal year 2020 (excluding, at the direction of the Company’s management, the net proceeds from the MCC Business Sale), as reflected in the January 2021 Forecasts, to derive a range of implied enterprise values for the Company. Goldman Sachs subtracted from this range of implied enterprise values the Company’s net debt as of September 30, 2020 (defined for this purpose as the Company’s debt as of September 30, 2020, as reflected in the Company’s publicly available filings, less the Company’s unrestricted cash and short term investments balance as of September 30, 2020, as reflected in the Company’s publicly available filings), and divided the result by the implied total number of fully diluted shares of Company common stock outstanding as of December 28, 2020, based on the derived range of illustrative equity values, and calculated using information provided by management and the treasury stock method, to derive a range of implied values per share of Company common stock of $59.80 to $79.09.
General
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or Centene or the Merger.
Goldman Sachs prepared these analyses for purposes of providing its opinion to the Board as to the fairness from a financial point of view to the holders (other than Centene and its affiliates) of the shares of Magellan common stock, as of the date of the opinion, of the $95.00 in cash per share of Magellan common stock to be paid to such holders pursuant to the Merger Agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon projections of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Centene, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The consideration of $95.00 in cash per share of Magellan common stock was determined through arm’s-length negotiations between the Company and Centene and was approved by the Board. Goldman Sachs provided advice to the Board during the Company’s negotiations with Centene in connection with the Merger Agreement. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or that any specific amount of consideration constituted the only appropriate consideration for the Merger.
As described above, Goldman Sachs’ opinion to the Board was one of many factors taken into consideration by the Board in making its determination to approve the Merger. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the delivery of its fairness opinion to the Board and is qualified in its entirety by reference to the written opinion of Goldman Sachs, attached as Annex C to this proxy statement.
Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, Centene, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the Merger. Goldman Sachs has acted as financial advisor to the Company in connection with, and has participated in certain of the negotiations leading to, the Merger. Goldman Sachs expects to receive fees for its services in connection with the Merger, all of which are contingent upon consummation of the Merger, and the Company has agreed to reimburse certain of Goldman Sachs’ expenses arising, and indemnify Goldman Sachs against certain liabilities that may arise, out of its engagement. Goldman Sachs has provided certain financial advisory and/or
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underwriting services to the Company and/or its affiliates from time to time for which its Investment Banking Division has received, and may receive, compensation. During the two year period ended January 4, 2021, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to the Company and/or its affiliates of approximately $100,000. During the two year period ended January 4, 2021, the Investment Banking Division of Goldman Sachs has not been engaged by Centene or its affiliates to provide financial advisory or underwriting services for which Goldman Sachs has recognized compensation. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to the Company, Centene and their respective affiliates for which Goldman Sachs’ Investment Banking Division may receive compensation.
The Company selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. Pursuant to an engagement letter between the Company and Goldman Sachs, dated January 10, 2017 (as reinstated and amended pursuant to a reinstatement of engagement letter, dated October 27, 2020), the Company engaged Goldman Sachs to act as its financial advisors in connection with the Merger. The engagement letter provides for a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $13 million, all of which is contingent upon completion of the Merger. In addition, the Company agreed to reimburse Goldman Sachs for certain of its expenses, including reasonable attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
Opinion of Guggenheim Securities, LLC
Overview
The Board retained Guggenheim Securities as its financial advisor in connection with the potential sale of the Company. In selecting Guggenheim Securities as its financial advisor, the Board considered, among other things, that Guggenheim Securities is an internationally recognized investment banking, financial advisory and securities firm whose senior professionals have substantial experience advising companies in, among other industries, the healthcare industry. Guggenheim Securities, as part of its investment banking, financial advisory and capital markets businesses, is regularly engaged in the valuation and financial assessment of businesses and securities in connection with mergers and acquisitions, recapitalizations, spin-offs/split-offs, restructurings, securities offerings in both the private and public capital markets and valuations for corporate and other purposes.
At a meeting of the Board on January 3, 2021, Guggenheim Securities rendered an oral opinion, which was subsequently confirmed by delivery of a written opinion, to the Board to the effect that, as of January 4, 2021 and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the Merger Consideration was fair, from a financial point of view, to the holders of shares of Magellan common stock.
This description of Guggenheim Securities’ opinion is qualified in its entirety by the full text of the written opinion, which is attached as Annex D to this proxy statement and which you should read carefully and in its entirety. Guggenheim Securities’ written opinion sets forth the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken by Guggenheim Securities. Guggenheim Securities’ written opinion, which was authorized for issuance by the Fairness Opinion and Valuation Committee of Guggenheim Securities, is necessarily based on economic, business, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion. As the Company was aware, global economic conditions and the global capital markets were experiencing and remained subject to significant volatility, and Guggenheim Securities expressed no view or opinion as to any potential effects of such volatility on the Company, Centene or the Merger. Guggenheim Securities has no responsibility for updating or revising its opinion based on facts, circumstances or events occurring after the date of the rendering of the opinion.
In reading the discussion of Guggenheim Securities’ opinion set forth below, you should be aware that such opinion (and, as applicable, any materials provided in connection therewith or the summary of Guggenheim Securities’ underlying financial analyses elsewhere in this proxy statement):
was provided to the Board (in its capacity as such) for its information and assistance in connection with its evaluation of the Merger Consideration;
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did not constitute a recommendation to the Board with respect to the Merger;
does not constitute advice or a recommendation to any holder of shares of Magellan common stock as to how to vote or act in connection with the Merger or otherwise;
did not address the Company’s underlying business or financial decision to pursue or effect the Merger, the relative merits of the Merger as compared to any alternative business or the effects of any other transaction in which the Company might engage;
addressed only the fairness, from a financial point of view and as of the date of such opinion, of the Merger Consideration to the holders of shares of Magellan common stock;
expressed no view or opinion as to (i) any other term, aspect or implication of (a) the Merger (including, without limitation, the form or structure of the Merger) or the Merger Agreement or (b) any voting and support agreement or any other agreement, transaction document or instrument contemplated by the Merger Agreement or to be entered into or amended in connection with the Merger or (ii) the fairness, financial or otherwise, of the Merger to, or of any consideration to be paid to or received by, the holders of any class of securities (other than as expressly specified in the opinion), creditors or other constituencies of the Company; and
expressed no view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the Company’s directors, officers or employees, or any class of such persons, in connection with the Merger relative to the Merger Consideration or otherwise.
In the course of performing its reviews and analyses for rendering its opinion, Guggenheim Securities:
reviewed a draft of the Merger Agreement dated as of January 2, 2021;
reviewed certain publicly available business and financial information regarding the Company;
reviewed certain non-public business and financial information regarding the Company’s business and future prospects (including certain financial projections for Magellan on a standalone basis for the years ending December 31, 2020 through December 31, 2024, referenced in this section as the “January 2021 Forecasts” (which are summarized in the section entitled “—Certain Forecasts” beginning on page 45) and certain other estimates and other forward-looking information), all as prepared and approved for Guggenheim Securities’ use by the Company’s senior management (collectively, referenced in this section as the “Company-Provided Information”);
discussed with the Company’s senior management their views of the Company’s business, operations, historical and projected financial results and future prospects and the commercial, competitive and regulatory dynamics in the healthcare sector;
performed discounted cash flow analyses based on the January 2021 Forecasts;
reviewed the valuation and financial metrics of certain mergers and acquisitions that Guggenheim Securities deemed relevant in evaluating the Merger;
reviewed the historical prices and trading multiples of shares of Magellan common stock;
compared the financial performance of the Company and the trading multiples and trading activity of shares of Magellan common stock with corresponding data for certain other publicly traded companies that Guggenheim Securities deemed relevant in evaluating the Company; and
conducted such other studies, analyses, inquiries and investigations as Guggenheim Securities deemed appropriate.
With respect to the information used in arriving at its opinion, Guggenheim Securities noted that:
Guggenheim Securities relied upon and assumed the accuracy, completeness and reasonableness of all industry, business, financial, legal, regulatory, tax, accounting, actuarial and other information provided by or discussed with the Company (including, without limitation, the Company-Provided Information) or obtained from public sources, data suppliers and other third parties.
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Guggenheim Securities (i) did not assume any responsibility, obligation or liability for the accuracy, completeness, reasonableness, achievability or independent verification of, and Guggenheim Securities did not independently verify, any such information (including, without limitation, the Company-Provided Information), (ii) expressed no view or opinion regarding the reasonableness or achievability of the January 2021 Forecasts, any other estimates and any other forward-looking information provided by the Company or the assumptions upon which any of the foregoing are based and (iii) relied upon the assurances of the Company’s senior management that they were unaware of any facts or circumstances that would make the Company-Provided Information incomplete, inaccurate or misleading.
Specifically, with respect to (i) the January 2021 Forecasts utilized in its analyses, (a) Guggenheim Securities was advised by the Company’s senior management, and Guggenheim Securities assumed, that the January 2021 Forecasts had been reasonably prepared on bases reflecting the best then-currently available estimates and judgments of the Company’s senior management as to the expected future performance of the Company on a stand-alone basis and (b) Guggenheim Securities assumed that the January 2021 Forecasts had been reviewed by the Board with the understanding that such information would be used and relied upon by Guggenheim Securities in connection with rendering its opinion and (ii) any financial projections/forecasts, any other estimates and/or any other forward-looking information obtained by Guggenheim Securities from public sources, data suppliers and other third parties, Guggenheim Securities assumed that such information was reasonable and reliable.
Guggenheim Securities also noted certain other considerations with respect to its engagement and the rendering of its opinion:
During the course of its engagement, Guggenheim Securities was not asked by the Board to, and Guggenheim Securities did not, solicit indications of interest from any potential third-party transaction counterparties regarding a potential extraordinary corporate transaction with or involving the Company.
Guggenheim Securities did not perform or obtain any independent appraisal of the assets or liabilities (including any contingent, derivative or off-balance sheet assets and liabilities) of the Company or any other entity or the solvency or fair value of the Company or any other entity, nor was Guggenheim Securities furnished with any such appraisals.
Guggenheim Securities’ professionals are not legal, regulatory, tax, consulting, accounting, appraisal or actuarial experts and nothing in Guggenheim Securities’ opinion should be construed as constituting advice with respect to such matters; accordingly, Guggenheim Securities relied on the assessments of the Company’s senior management and the Company’s other professional advisors with respect to such matters.
Guggenheim Securities further assumed that:
in all respects meaningful to its analyses, (i) the final executed Merger Agreement would not differ from the draft that Guggenheim Securities reviewed, (ii) the Company, Centene and Merger Sub would comply with all terms and provisions of the Merger Agreement, and (iii) the representations and warranties of the Company, Centene and Merger Sub contained in the Merger Agreement were true and correct and all conditions to the obligations of each party to the Merger Agreement to consummate the Merger would be satisfied without any waiver, amendment or modification thereof;
the Merger would be consummated in a timely manner in accordance with the terms of the Merger Agreement and in compliance with all applicable legal and other requirements, without any delays, limitations, restrictions, conditions, divestiture or other requirements, waivers, amendments or modifications (regulatory, tax-related or otherwise) that would have an effect on the Company or the Merger in any way meaningful to Guggenheim Securities’ analyses or opinion; and
Guggenheim Securities did not express any view or opinion as to the price or range of prices at which shares of Magellan common stock or other securities or financial instruments of or relating to the Company may trade or otherwise be transferable at any time, including subsequent to the announcement or consummation of the Merger.
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Summary of Financial Analyses
Overview of Financial Analyses
This “Summary of Financial Analyses” presents a summary of the principal financial analyses performed by Guggenheim Securities and presented to the Board in connection with Guggenheim Securities’ rendering of its opinion. Such presentation to the Board was supplemented by Guggenheim Securities’ oral discussion, the nature and substance of which may not be fully described herein.
Some of the financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully such financial analyses, the summary data and tables must be read together with the full text of the summary. Considering the summary data and tables alone could create a misleading or incomplete view of Guggenheim Securities’ financial analyses.
The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant financial analyses and the application of those methods to the particular circumstances involved. A fairness opinion therefore is not readily susceptible to partial analysis or summary description, and taking portions of the financial analyses set forth below, without considering such analyses as a whole, would in Guggenheim Securities’ view create an incomplete and misleading picture of the processes underlying the financial analyses considered in rendering Guggenheim Securities’ opinion.
In arriving at its opinion, Guggenheim Securities:
based its financial analyses on various assumptions, including assumptions concerning general economic, business and capital markets conditions and industry-specific and company-specific factors, all of which are beyond the control of the Company, Centene and Guggenheim Securities;
did not form a view or opinion as to whether any individual analysis or factor, whether positive or negative, considered in isolation, supported or failed to support its opinion;
considered the results of all of its financial analyses and did not attribute any particular weight to any one analysis or factor; and
ultimately arrived at its opinion based on the results of all of its financial analyses assessed as a whole and believes that the totality of the factors considered and the various financial analyses performed by Guggenheim Securities in connection with its opinion operated collectively to support its determination as to the fairness, from a financial point of view and as of the date of such opinion, of the Merger Consideration to the holders of shares of Magellan common stock to the extent expressly specified in such opinion.
With respect to the financial analyses performed by Guggenheim Securities in connection with rendering its opinion:
Such financial analyses, particularly those based on estimates and projections, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by these analyses.
None of the selected precedent merger and acquisition transactions used in the selected precedent merger and acquisition transactions analysis described below is identical or directly comparable to the Merger, and none of the selected publicly traded companies used in the selected publicly traded companies analysis described below is identical or directly comparable to the Company or Centene. However, such companies and transactions were selected by Guggenheim Securities, among other reasons, because they represented publicly traded companies or involved target companies which may be considered broadly similar, for purposes of Guggenheim Securities’ financial analyses, to the Company and Centene based on Guggenheim Securities’ familiarity with the healthcare industry.
In any event, selected precedent merger and acquisition transactions analysis and selected publicly traded companies analysis are not mathematical. Rather, such analyses involve complex considerations and judgments concerning the differences in business, operating, financial and capital markets-related characteristics and other factors regarding the selected publicly traded companies to which the Company and Centene were compared and the selected precedent merger and acquisition transactions to which the Merger was compared.
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Such financial analyses do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future.
Certain Definitions
Throughout this “Summary of Financial Analyses,” the following defined terms are used in connection with Guggenheim Securities’ various financial analyses:
CY: means calendar year.
EBITDA: means the relevant company’s operating earnings (after deduction of stock-based compensation) before interest, taxes, depreciation and amortization.
Enterprise value: represents the relevant company’s net equity value (as defined below) plus (i) the principal or face amount of total debt and (ii) the book value of any non-controlling/minority interests less (iii) cash, cash equivalents, short- and long-term marketable investments and certain other cash-like items and (iv) the book value of any non-consolidated investments.
EPS: means the relevant company’s earnings per share.
Net equity value: represents the relevant company’s (i) gross equity value as calculated (a) based on outstanding common shares, restricted stock units and performance stock units (in each of the foregoing cases, as applicable) plus shares issuable upon the conversion or exercise of all in-the-money convertible securities, stock options and/or stock warrants times (b) the relevant company’s stock price less (ii) the cash proceeds from the assumed exercise of all in-the-money stock options and stock warrants.
NTM: means next twelve months.
Unlevered free cash flow: means the relevant company’s after-tax unlevered operating cash flow (after deduction of stock-based compensation) minus capital expenditures and changes in working capital.
VWAP: means volume-weighted average share price over the indicated period of time.
Recap of Implied Merger Financial Metrics
Based on the Merger Consideration, Guggenheim Securities calculated various Merger-implied premia and multiples as outlined in the table below:
Merger-Implied Premia and Merger-Implied Multiples
Merger Consideration
$95.00
 
Company
Stock
Price
 
Acquisition Premium/(Discount) Relative to the Company’s:
 
 
Unaffected Stock Price @ 12/31/20
$82.84
14.7%
52-Week High
87.52
8.5
Unaffected VWAPs @ 12/31/20:
 
 
30-Day
80.29
18.3
60-Day
79.42
19.6
90-Day
77.91
21.9
 
 
 
Transaction Enterprise Value(1) / EBITDA:
 
 
CY2021E
 
10.8x
CY2022E
 
8.9
 
 
 
Merger Consideration per Share / EPS:
 
 
CY2021E
 
33.5x
CY2022E
 
24.2
(1)
Based on projected debt and pro forma adjusted cash balance as of December 31, 2020 as provided by Company management.
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Company Change-of-Control Financial Analyses
Recap of Company Change-of-Control Financial Analyses. In evaluating the Company in connection with rendering its opinion, Guggenheim Securities performed various financial analyses which are summarized in the table below and described in more detail elsewhere herein, including a discounted cash flow analysis, a selected precedent merger and acquisition transactions analysis and a selected publicly traded companies analysis. Solely for informational reference purposes, Guggenheim Securities also reviewed the historical trading price range for the shares of the Company’s common stock since the Company announced its agreement to sell the MCC Business and Wall Street equity research analysts’ price targets for the shares of Magellan common stock.
Recap of Company Change-of-Control Financial Analyses
Merger Consideration
$95.00
 
Reference Range
for the Company on
a Change-of-
Control Basis(1)
Financial Analyses
Low
High
Discounted Cash Flow Analysis
$87.75
$111.50
Selected Precedent M&A Transactions Analysis
81.75
96.25
Selected Publicly Traded Companies Analysis
71.25
85.00
For Informational Reference Purposes
 
 
The Company’s Low / High Stock Price Since MCC Business Sale Announcement (April 30, 2020)
$57.38
$87.52
Wall Street Equity Research Share Price Targets
92.00
98.00
(1)
Rounded to the nearest $0.25 (except trading range).
Discounted Cash Flow Analysis. Guggenheim Securities performed a stand-alone discounted cash flow analysis of the Company based on projected unlevered free cash flows for the Company and an estimate of the Company’s terminal/continuing value at the end of the projection horizon.
In performing its discounted cash flow analysis with respect to the Company:
Guggenheim Securities utilized the January 2021 Forecasts.
Guggenheim Securities used a discount rate range of 7.5% – 8.5% based on its estimate of the Company’s weighted average cost of capital (which was estimated based on Guggenheim Securities’ (i) investment banking and capital markets judgment and experience in valuing companies similar to the Company and (ii) application of the capital asset pricing model, which requires certain (a) general inputs such as the prospective U.S. equity risk premium and the corresponding risk-free rate and (b) company-specific inputs such as the subject company’s forward-looking equity beta reference range, the subject company’s assumed forward-looking capital structure and the corresponding blended cost of debt, the subject company’s prospective marginal cash income tax rate and, as applicable, the appropriate size/liquidity premium for the subject company).
In estimating the Company’s terminal/continuing value for purposes of its discounted cash flow analysis, Guggenheim Securities used a reference range of perpetual growth rates of the Company’s terminal year unlevered free cash flow of 1.0% – 2.0%. Guggenheim Securities selected such terminal/continuing value-related perpetual growth rates based on its professional judgment, taking into account various considerations and factors, including among others (i) the nature of the Company’s businesses, including recent and expected trends in and competitive dynamics with respect to, and expected long-term growth prospects for, the industry and markets in which the Company operates, (ii) the January 2021 Forecasts and (iii) then-prevailing market expectations regarding U.S. long-term economic growth and U.S. long-term inflation. The terminal/continuing values implied by the foregoing perpetual growth rate reference range were cross-checked for reasonableness by reference to the Company’s implied terminal year EBITDA multiples.
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Guggenheim Securities’ discounted cash flow analysis resulted in an overall reference range of $87.75 – $111.50 per share.
Selected Precedent Merger and Acquisition Transactions Analysis. Guggenheim Securities reviewed and analyzed certain financial metrics associated with selected precedent merger and acquisition transactions announced since January 1, 2006 involving target companies in the pharmacy & specialty benefit managers and behavioral health sectors, and target companies in the managed care sector that Guggenheim Securities deemed relevant for purposes of this analysis. Guggenheim Securities calculated, among other things and to the extent publicly available, certain implied change-of-control transaction multiples for the selected precedent merger and acquisition transactions (based on Wall Street equity research consensus estimates, each company’s most recent publicly available financial filings and certain other publicly available information), which are summarized in the table below:
Selected Precedent Merger and Acquisition (M&A) Transactions Analysis
Date
Announced
Acquiror
Target Company
Transaction
Enterprise
Value /
NTM
EBITDA
Precedent M&A Transactions – Pharmacy & Specialty Benefit Managers and Behavioral Health
 
12/09/19
OptumRx
Diplomat Pharmacy, Inc.
11.5x
06/06/19
Anthem, Inc.
Beacon Health Options
NM
12/11/18
KKR / PharMerica Corporation
BrightSpring Health Services
NM
03/08/18
Cigna Corporation
Express Scripts Holding Corporation
8.7
11/15/17
Diplomat Pharmacy, Inc.
LDI Integrated Pharmacy Services
11.9
10/10/17
Express Scripts Holding Corporation
eviCore Healthcare
10.7
03/30/15
OptumRx
Catamaran Corporation
14.4
02/11/15
Rite Aid Corporation
EnvisionRx
11.3
10/29/14
Acadia Healthcare Company, Inc.
CRC Health Group, Inc
NM
04/18/12
SXC Health Solutions Corp.
Catalyst Health Solutions, Inc.
18.2
07/21/11
Express Scripts Holding Company
Medco Health Solutions, Inc.
10.2
05/18/10
Universal Health Services, Inc.
Psychiatric Solutions, Inc.
9.1
04/13/09
Express Scripts Holding Company
WellPoint NextRx
NM
07/09/07
WellPoint, Inc.
American Imaging Management
7.5
11/01/06
CVS Health Corporation
Caremark Rx, Inc.
12.7
01/31/06
Magellan Health Inc.
National Imaging Associates, Inc.
7.8
 
 
 
 
Statistical Summary
 
 
Median
 
11.0x
 
Mean
 
11.2
 
 
 
 
Precedent M&A Transactions – Managed Care
 
03/27/19
Centene Corporation
WellCare Health Plans, Inc.
14.6x
12/03/17
CVS Health Corporation
Aetna Inc.
13.1
11/17/16
WellCare Health Plans, Inc.
Universal American Corp.
17.6
07/02/15
Centene Corporation
Health Net, Inc.
11.2
08/20/12
Aetna Inc.
Coventry Health Care Inc.
7.9
07/09/12
WellPoint, Inc.
AmeriGroup Corporation
12.3
10/24/11
Cigna Corporation
HealthSpring, Inc.
7.6
 
 
 
 
Statistical Summary
 
 
Median
 
12.3x
 
Mean
 
12.0
 
 
 
 
Centene/Company Merger
10.8x
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In performing its selected precedent merger and acquisition transactions analysis with respect to the Company, Guggenheim Securities selected a reference range of transaction enterprise value / NTM EBITDA multiple of 9.0x – 11.0x, based on Guggenheim Securities’ professional judgment, and applied that range to the Company’s CY2021E EBITDA as reflected in the January 2021 Forecasts, which resulted in an overall reference range of $81.75 – $96.25 per share for purposes of evaluating shares of the Company common stock on a change-of-control basis.
Selected Publicly Traded Companies Analysis. Guggenheim Securities reviewed and analyzed the Company’s historical stock price performance, trading metrics and historical and projected/forecasted financial performance compared to corresponding data for selected publicly traded companies that Guggenheim Securities deemed relevant for purposes of this analysis. Guggenheim Securities calculated, among other things, various public market trading multiples for the Company and the selected publicly traded companies (in the case of the selected publicly traded companies, based on Wall Street equity research consensus estimates and each company’s most recent publicly available financial filings), which are summarized in the table below:
Selected Publicly Traded Companies Analysis
 
CY 2021E
Share Price /
EPS
Publicly Traded Companies
 
Providence Service Corporation
25.2x
Tivity Health, Inc.
14.4
Option Care Health, Inc.
NM
UnitedHealth Group
19.2
CVS Health Corporation
9.1
Cigna Corporation
10.1
Anthem, Inc.
12.6
Humana, Inc.
18.9
Centene Corporation
11.4
Molina Healthcare, Inc.(1)
15.4
 
 
Statistical Summary
 
Median
14.4x
 
 
The Company
 
Management Forecast
29.2x
Wall Street Forecast
24.0
(1)
Pro forma for Molina’s acquisition of Affinity Health Plan and the MCC Business
In performing its selected publicly traded companies analysis with respect to the Company, Guggenheim Securities selected a reference range of trading price / adjusted earnings per share multiple of 13.0x – 18.0x, based on Guggenheim Securities’ professional judgment, and applied that range to CY 2021E EPS (adjusted, at the direction of the Company’s management, to exclude interest income associated with proceeds from the MCC Business Sale) for purposes of evaluating the Company on a stand-alone public market trading basis, which resulted in an overall reference range of $71.25—$85.00 per share for purposes of evaluating shares of Company common stock on a stand-alone public market trading basis.
Other Financial Reviews Solely for Informational Reference Purposes
In order to obtain certain context for the financial analyses in connection with its opinion as described above, Guggenheim Securities undertook various additional financial reviews as summarized below solely for informational reference purposes. As a general matter, Guggenheim Securities did not consider such additional financial reviews to be determinative methodologies for purposes of its opinion.
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High and Low Stock Prices since MCC Business Sale Announcement. Guggenheim Securities reviewed the trading price of shares of Company common stock for the period beginning April 30, 2020 (the announcement date of the MCC Business Sale) and ending December 31, 2020. Among other things, Guggenheim Securities noted that the range of such high and low trading prices was $57.38—$87.52.
Wall Street Equity Research Analyst Stock Price Targets. Guggenheim Securities reviewed selected Wall Street equity research analyst stock price targets for the Company as published prior to December 31, 2020. Guggenheim Securities noted that such Wall Street equity research analyst stock price targets for the shares of Magellan common stock were $92.00—$98.00 per share.
Other Considerations
Except as described in the summary above, the Company did not provide specific instructions to, or place any limitations on, Guggenheim Securities with respect to the procedures to be followed or factors to be considered in performing its financial analyses or providing its opinion. The type and amount of consideration payable in the Merger were determined through negotiations between the Company and Centene and were approved by the Board. The Company’s decision to enter into the Merger Agreement was solely that of the Board. Guggenheim Securities’ opinion was just one of the many factors taken into consideration by the Board. Consequently, Guggenheim Securities’ financial analyses should not be viewed as determinative of the decision of the Board with respect to the fairness, from a financial point of view and as of the date of Guggenheim Securities’ opinion, of the Merger Consideration to the holders of shares of Magellan common stock.
Pursuant to the terms of Guggenheim Securities’ engagement, the Company has agreed to pay Guggenheim Securities a cash transaction fee entirely contingent upon the consummation of the Merger, which cash transaction fee is estimated, based on the information available as of the date of announcement, to be approximately $13 million. In addition, the Company agreed to reimburse Guggenheim Securities for certain expenses and to indemnify Guggenheim Securities against certain liabilities arising out of its engagement.
Aside from its current engagement by the Company, Guggenheim Securities has not been previously engaged during the past two years by the Company and/or its affiliates known to Guggenheim Securities, nor has Guggenheim Securities been previously engaged during the past two years by Centene and/or its affiliates known to Guggenheim Securities, to provide financial advisory, capital markets or investment banking services for which Guggenheim Securities has received compensation. Guggenheim Securities may seek to provide the Company and Centene and their respective affiliates with financial advisory, capital markets and investment banking services unrelated to the Merger in the future, for which services Guggenheim Securities would expect to receive compensation.
Guggenheim Securities and its affiliates and related entities engage in a wide range of financial services activities for its and their own accounts and the accounts of customers, including but not limited to: asset, investment and wealth management; insurance services; investment banking, corporate finance, mergers and acquisitions and restructuring; merchant banking; fixed income and equity sales, trading and research; and derivatives, foreign exchange and futures. In the ordinary course of these activities, Guggenheim Securities and its affiliates and related entities may (i) provide such financial services to the Company, Centene, other participants in the Merger and their respective affiliates, for which services Guggenheim Securities and its affiliates and related entities may have received, and may in the future receive, compensation and (ii) directly and indirectly hold long and short positions, trade and otherwise conduct such activities in or with respect to loans, debt and equity securities and derivative products of or relating to the Company, Centene, other participants in the Merger and their respective affiliates. Furthermore, Guggenheim Securities and its affiliates and related entities and Guggenheim Securities’ or their respective directors, officers, employees, consultants and agents may have investments in the Company, Centene, other participants in the Merger and their respective affiliates.
Consistent with applicable legal and regulatory guidelines, Guggenheim Securities has adopted certain policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, Guggenheim Securities’ research analysts may hold views, make statements or investment recommendations and publish research reports with respect to the Company, Centene, other participants in the Merger and their respective affiliates that differ from the views of Guggenheim Securities’ investment banking personnel.
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Interests of Directors and Executive Officers in the Merger
Members of our Board and our executive officers have various interests in the Merger described in this section that may be in addition to, or different from, the interests of the Company stockholders generally. You should keep this in mind when considering the recommendation of the Board for the adoption of the Merger Agreement. The members of the Board were aware of these interests and considered them at the time they approved the Merger Agreement and in making their recommendation that Magellan stockholders adopt the Merger Agreement. These interests are described below.
The amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate as of the date referenced; therefore, the actual amounts, if any, that may be paid or become payable may materially differ from the amounts set forth below.
Treatment of Outstanding Equity Awards
The Merger Agreement provides that, as of the Effective Time:
each outstanding Company Option will be converted into an adjusted option with the same terms and conditions as were applicable to such Company Option immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company Option, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded down to the nearest whole share. The exercise price per share of Centene common stock subject to any adjusted option will be an amount equal to the quotient of (A) the exercise price per share of Magellan common stock subject to such Company Option immediately prior to the Effective Time, divided by (B) the Stock Award Exchange Ratio, with any fractional cents rounded up to the nearest whole cent. The exercise price per share of Centene common stock subject to any adjusted option and the number of shares of Centene common stock subject to any such adjusted option will be determined in a manner consistent with the requirements of Section 409A of the Code, and, in the case of Company Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code, consistent with the requirements of Section 424 of the Code;
each outstanding Company PSU will be converted into a restricted stock unit with the same terms and conditions as were applicable to such Company PSU immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy, but excluding the performance-based vesting conditions applicable to such Company PSU which will not apply from and after the Effective Time) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company PSU based on the achievement of the applicable performance metrics at the target level of performance, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share;
each outstanding Company RSA, other than those granted to nonemployee members of the Board, will be converted into a restricted share award with the same terms and conditions as were applicable to such Company RSA immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company RSA, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share;
each outstanding Company Director RSA will be cancelled and converted into the right to receive the Merger Consideration for each share of Magellan common stock subject to such Company Director RSA, payable as soon as practicable after the Effective Time and in no event later than five (5) business days after the Effective Time;
each outstanding Company RSU will be converted into a restricted stock unit with the same terms and conditions as were applicable to such Company RSU immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award
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agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company RSU, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share; and
each outstanding Company PCU will be converted into a phantom cash unit with the same terms and conditions as were applicable to such Company PCU immediately prior to the Effective Time (including double-trigger vesting and all other provisions set forth under the applicable award agreements and the Company’s retirement policy) and relating to the number of shares of Centene common stock equal to the product of (i) the number of shares of Magellan common stock subject to such Company PCU, multiplied by (ii) the Stock Award Exchange Ratio, with any fractional shares rounded to the nearest whole share.
The estimated aggregated amounts that would become payable to each nonemployee member of the Board in respect of his or her equity awards is as follows: Steven J. Shulman, $201,590; Swati Abbot, $201,590; Christopher J. Chen, $201,590; Peter A. Feld, $201,590; Mural R. Josephson, $201,590; G. Scott Mackenzie, $201,590; Leslie V. Norwalk, $201,590; and Guy P. Sansone, $201,590. Accordingly, the estimated aggregate amount that would become payable to all of the nonemployee members of the Board is $1,612,720.
Because the Merger Agreement does not provide for the acceleration and “cash-out” of any Company equity awards held by the Company’s executive officers, no executive officer will receive payments in respect of his or her Company equity awards as a result of the Merger unless such executive officer is subject to a Qualifying Termination (as defined below) during the Protection Period (as defined below), except that the Merger will result in the single-trigger acceleration of a portion of Mr. Fasola’s outstanding equity awards, as summarized below in the section entitled “—New Arrangement with Centene,” beginning on page 68. None of the executives hold Company PCUs or participate in the ESPP.
See the section below entitled “—Golden Parachute Compensation” beginning on page 68 for an estimate of the payments to which each of the Company’s named executive officers would be entitled in respect of his or her equity awards upon a termination of the named executive officer’s employment by the Company without “cause” or due to the executive officer’s resignation for “good reason” (as such terms are defined in the relevant plans and agreements, a “Qualifying Termination”) occurring immediately following the Effective Time and the estimated aggregate values of Mr. Fasola’s outstanding equity awards subject to single-trigger acceleration in connection with the Merger. Further, based on the assumptions described below, the estimated amount that would be payable in respect of the equity awards held by Ms. Lewis-Clapper assuming a Qualifying Termination that occurs immediately following the Effective Time is as follows: Company Options - $336,172, Company PSUs - $1,041,653 and Company RSUs - $667,771.
Employment Agreements with Executive Officers
The Company entered into employment agreements (we refer to each such agreement as an “Employment Agreement” and, collectively, the “Employment Agreements”) with Messrs. Fasola, Bourdon, Haddock, Kamal, Murray and Rubin and Ms. Lewis-Clapper.
Under the Employment Agreement with Mr. Fasola, upon a termination by the Company without “cause” (including by the Company's nonrenewal of the term) or a resignation by the executive for “good reason” (as such terms are defined in the executive’s Employment Agreement), Mr. Fasola is entitled to the following severance payments and benefits: (i) one and one-half times the sum of base salary plus target bonus payable over an 18-month period, (ii) reimbursement of the Company’s portion of health insurance premiums for a period of up to 18 months after the date of termination, (iii) pro-rata annual bonus for the year of termination based on actual performance, (iv) continued vesting of the executive’s sign-on Company PSUs and (v) full acceleration of the executive’s sign-on Company RSUs. If such termination by the Company without “cause” or resignation by the executive for “good reason” occurs on or prior to and in connection with, or within two years following a “change in control” (as defined in the executive’s Employment Agreement), then, in addition to the forgoing severance, Mr. Fasola is entitled to one and one-half times the sum of base salary plus target bonus payable in a single installment immediately upon termination. The payments and benefits are subject to the executive’s execution and non-revocation of a general release of claims. Any payments under the executive’s Employment Agreement or another agreement or arrangement applicable to the executive that would constitute “parachute payments” under Section 280G of the Code will either be reduced to the extent necessary to avoid excise taxes,
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or will be paid in full, whichever would result in net greater payments to the executive on an after-tax basis. For details regarding modifications to Mr. Fasola’s Employment Agreement that will go into effect upon the consummation of the Merger, see the section entitled “—New Arrangement with Centene” beginning on page 68.
Under the Employment Agreement with Mr. Bourdon, upon a termination by the Company without “cause” (including by the Company’s nonrenewal of the term) or a resignation by the executive for “good reason” (as such terms are defined in the executive’s Employment Agreement), Mr. Bourdon is entitled to the following severance payments and benefits: (i) one times base salary payable over a 12-month period, (ii) reimbursement of the company’s portion of health insurance premiums for a period of up to 12 months after the date of termination, and (iii) pro-rata annual bonus for the year of termination based on actual performance. The foregoing payments and benefits are subject to the executive’s execution and non-revocation of a general release of claims. If such termination by the Company without “cause” or resignation by the executive for “good reason” is in connection with, or within two years following, a “change in control” (as defined in the executive’s Employment Agreement), then, in addition to the foregoing severance, Mr. Bourdon is entitled to (a) the sum of one times base salary plus two times target bonus payable in a single installment immediately upon termination, and (b) reimbursement of the Company’s portion of health insurance premiums for a period of up to 6 additional months after the date of termination, (c) full acceleration of the executive’s sign-on Company RSUs, and (d) full acceleration of the executive’s sign-on Company PSUs at target level. Any payments under the executive’s Employment Agreement or another agreement or arrangement applicable to the executive that would constitute “parachute payments” under Section 280G of the Code will either be reduced to the extent necessary to avoid excise taxes, or will be paid in full, whichever would result in net greater payments to the executive on an after-tax basis.
Under the Employment Agreement with Mr. Haddock, upon a termination by the Company without “cause” (including by the Company's nonrenewal of the term) or a resignation by the executive for “good reason” (as such terms are defined in the executive’s Employment Agreement), Mr. Haddock is entitled to the following severance payments and benefits: (i) one times base salary payable over a 12-month period, (ii) reimbursement of the company’s portion of health insurance premiums for a period of up to 12 months after the date of termination, and (iii) pro-rata annual bonus for the year of termination based on actual performance. The foregoing payments and benefits are subject to the executive’s execution and non-revocation of a general release of claims. If such termination by the Company without “cause” or resignation by the executive for “good reason” is in connection with a “change in control” (as defined in the executive’s Employment Agreement) that occurs 18 months or longer after the executive’s commencement date, or within two years following a change in control, then, in addition to the foregoing severance, Mr. Haddock is entitled to (a) the sum of one times base salary plus two times target bonus payable in a single installment immediately upon termination, (b) reimbursement of the company’s portion of health insurance premiums for a period of up to 6 additional months after the date of termination, (c) full acceleration of the executive’s sign-on RSUs, and (d) full acceleration of the executive’s sign-on Company PSUs at target level. Any payments under the executive’s Employment Agreement or another agreement or arrangement applicable to the executive that would constitute “parachute payments” under Section 280G of the Code will either be reduced to the extent necessary to avoid excise taxes, or will be paid in full, whichever would result in net greater payments to the executive on an after-tax basis.
Under the Employment Agreement with Mr. Kamal, upon a termination by the Company without “cause” (including by the Company's nonrenewal of the term) or a resignation by the executive for “good reason” (as such terms are defined in the executive’s Employment Agreement), Mr. Kamal is entitled to the following severance payments: (i) one times base salary payable over a 12-month period, (ii) in the sole discretion of the Company, pro-rata annual bonus for the year of termination, and (iii) reimbursement of the Company’s portion of health insurance premiums for a period of up to 12 months after the date of termination. If such termination by the Company without “cause” or resignation by the executive for “good reason” is in connection with, or within two years following, a “change in control” (as defined in the executive’s Employment Agreement), Mr. Kamal is entitled to the following severance payments and benefits, in lieu of the foregoing severance: (a) two times the sum of base salary plus target bonus payable in a single installment immediately upon termination, (b) reimbursement of the Company’s portion of health insurance premiums for a period of up to 18 months after the date of termination, (c) pro-rata annual bonus for the year of termination based on target amount, and (d) full acceleration of the executive’s outstanding Company PSUs at target level. The payments and benefits are subject to the executive’s execution and non-revocation of a general release of claims. Any
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payments under the executive’s Employment Agreement or another agreement or arrangement applicable to the executive that would constitute “parachute payments” under Section 280G of the Code will either be reduced to the extent necessary to avoid excise taxes, or will be paid in full, whichever would result in net greater payments to the executive on an after-tax basis.
Under the Employment Agreement with Ms. Lewis-Clapper, upon a termination by the Company “without cause” (including by the Company's nonrenewal of the term) (as such term is defined in the executive’s Employment Agreement), Ms. Lewis-Clapper is entitled to the following severance payments and benefits: (i) one times base salary payable over a 12-month period, (ii) in the sole discretion of the Company, pro-rata annual bonus for the year of termination and (iii) reimbursement of the Company’s portion of health insurance premiums for a period of up to 12 months after the date of termination. Upon a termination by the Company without “cause” or resignation by the executive for “good reason” in connection with a “change in control” (as such terms are defined in the executive’s Employment Agreement), whether before or at the time of such change in control, or within two years following a change in control, then Ms. Lewis-Clapper is entitled to the following severance payments and benefits, in lieu of the foregoing severance: (a) two times the sum of base salary plus target bonus payable in a single installment immediately upon termination, (b) reimbursement of the Company’s portion of health insurance premiums for a period of up to 18 months after the date of termination, and (c) pro-rata annual bonus for the year of termination based on target amount. The payments and benefits are subject to the executive’s execution and non-revocation of a general release of claims. In addition, Ms. Lewis-Clapper is entitled to receive a tax gross-up payment in the event that payments made to her in connection with a change in control become subject to an excise tax pursuant to Section 280G and 4999 of the Code.
Under the Employment Agreement with Mr. Murray, upon a termination by the Company without “cause” or a resignation by the executive for “good reason” (as such terms are defined in the executive’s Employment Agreement, including by the Company’s nonrenewal of the term), Mr. Murray is entitled to the following severance payments and benefits: (i) one times base salary payable over a 12-month period, (ii) reimbursement of the company’s portion of health insurance premiums for a period of up to 12 months after the date of termination, (iii) pro-rata annual bonus for the year of termination based on actual performance, (iv) full acceleration of the executive’s sign-on stock options and sign-on Company RSUs, and (v) continued vesting of the executive’s sign-on Company PSUs. The foregoing payments and benefits are subject to the executive’s execution and non-revocation of a general release of claims. If such termination by the Company without “cause” or resignation by the executive for “good reason” is on or prior to and in connection with a “change in control” (as defined in the executive’s Employment Agreement) that occurs 18 months following the executive’s commencement date, or within two years following such change in control, then, in addition to the foregoing severance, Mr. Murray is entitled to (a) the sum of one times base salary plus two times target bonus payable in a single installment immediately upon termination, and (b) reimbursement of the company’s portion of health insurance premiums for a period of up to 6 additional months after the date of termination. Any payments under the executive’s Employment Agreement or another agreement or arrangement applicable to the executive that would constitute “parachute payments” under Section 280G of the Code will either be reduced to the extent necessary to avoid excise taxes, or will be paid in full, whichever would result in net greater payments to the executive on an after-tax basis.
The Employment Agreement with Mr. Rubin terminated upon his termination of employment with the Company effective December 31, 2020. Mr. Rubin is not entitled to receive any payments in connection with the Merger.
See the section below entitled “—Golden Parachute Compensation” beginning on page 68 for an estimate of the cash payment and benefit amounts (in addition to the amounts payable in respect of equity awards) that would be payable to each of the Company’s named executive officers under the Employment Agreements upon a termination of the named executive officer’s employment by the Company without “cause” or due to the executive officer’s resignation for “good reason” (as such terms are defined in the relevant plans and agreements, a “Qualifying Termination”) that occurs immediately following the Effective Time. Further, based on the assumptions described below, the estimated aggregate value of the cash payment and benefit amounts (in addition to the amiable in respect of equity awards provided above) that would be payable to Ms. Lewis-Clapper upon a Qualifying Termination that occurs immediately following the Effective Time is $1,537,649.
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Nonqualified Plan Contribution
The Magellan Health, Inc. Supplemental Accumulation Plan (which we refer to as the “SAP”) is a nonqualified deferred compensation plan that is designed to enhance opportunities for retirement savings for certain executives. The SAP includes a discretionary component funded by the Company which is determined on an annual basis as a fixed percentage of an executive’s base salary, and a voluntary deferral component under which the participant may make contributions from compensation. The discretionary component is offered to a limited group of executive officers who historically have received this contribution. In accordance with the terms of the Merger Agreement, on or about March 15, 2021, the Company will contribute to Ms. Lewis-Clapper’s SAP account an amount equal to 11% of base salary in accordance with past practice, subject to Ms. Lewis-Clapper’s continued employment with the Company through the contribution date (or earlier termination by the Company without “cause” or by the executive for “good reason” (as each such term is defined in the Company’s form of Notice of Terms of PSU)).
New Arrangement with Centene
In connection with the Merger Agreement, and dated as of the date thereof, Centene entered into a new letter agreement (which we refer to as the “Letter Agreement”) with Mr. Fasola. Under the Letter Agreement, Centene will cause the Company or Centene Management Corporation (which we refer to as “CMC”) to continue to honor the terms of Mr. Fasola’s Employment Agreement (discussed above), as amended by the Letter Agreement; provided, that the term of the Employment Agreement, as amended by the Letter Agreement, will expire on the 30-month anniversary of the Effective Time, unless earlier terminated by either party. If the Employment Agreement, as amended by the Letter Agreement, expires after 30 months and no new employment agreement is agreed, Mr. Fasola will be treated as having a Qualifying Termination under his Employment Agreement and the Letter Agreement. The Letter Agreement amends the Employment Agreement as follows: (i) Mr. Fasola will be employed by the Surviving Corporation or, at the discretion of Centene, CMC, in the position of Chief Executive Officer of the Surviving Corporation, reporting to Centene’s Senior Vice President, Technology Innovation and Modernization, (ii) the Letter Agreement sets forth Mr. Fasola’s annual and long term compensation, (iii) Mr. Fasola’s legacy incentive equity awards that converted into corresponding Centene incentive equity awards in accordance with the terms of the Merger Agreement (as described above) will vest 50% immediately following the Effective Time, 25% on the second anniversary of the Effective Time and 25% on the 30-month anniversary following the Effective Time, subject to continued employment through each vesting date or upon an earlier Qualifying Termination, and (iv) acknowledgement that the Merger and the changes to Mr. Fasola’s compensation, benefits, duties, responsibilities or reporting obligations set forth in the Letter Agreement will not constitute “good reason” for purposes of the Employment Agreement or any other plan or agreement entered into with or sponsored by the Company or any of its affiliates.
Golden Parachute Compensation
In accordance with Item 402(t) of Regulation S-K, the tables below present the estimated amounts of compensation that each named executive officer could receive that are based on or otherwise related to the Merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section we use such term to describe the Merger-related compensation payable to Magellan’s named executive officers. This Merger-related compensation is subject to a non-binding advisory vote of the Company’s stockholders. See the section entitled “Proposal 2: Non-Binding Merger-Related Compensation Proposal,” beginning on page 26.
Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section, the following assumptions were used:
the relevant price per share of Magellan common stock is $95.00, which is the price per share to be paid in connection with the Merger and used to calculate the Stock Award Exchange Ratio as of the Effective Time;
for purposes of the conversion of Company equity awards to Centene equity awards as described above under the section entitled “—Treatment of Outstanding Equity Awards; Company ESPP” beginning on page 77, the price per share of Centene common stock used to calculate the Stock Award Exchange Ratio on the assumed effective date of the Merger (as set forth below) is $62.4433952, based on the volume weighted average of the sale prices per share of Centene common stock for the 30 full consecutive trading days ending on and including January 26, 2021;
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the price per share of Centene common stock used to calculate the value of Company PSUs and Company RSUs is the closing stock price on January 26, 2021;
the assumed effective date of the Merger is January 27, 2021, the latest practicable date prior to the filing of this proxy statement, which is also the assumed date of the closing of the Merger solely for purposes of the disclosure in this section, unless noted otherwise; and
the employment of each executive officer of the Company will have been terminated without “cause” or due to the executive officer’s resignation for “good reason” (as such terms are defined in the relevant plans and agreements, a “Qualifying Termination”), in either case immediately following the assumed effective date of the Merger on January 27, 2021.
The amounts indicated below are estimates of amounts that would be payable to the named executive officers, and the estimates are based on multiple assumptions that may or may not actually occur, including assumptions described above in this section entitled “Interests of Directors and Executive Officers in the Merger” beginning on page 64. Some of the assumptions are based on information not currently available, and as a result, the actual amounts to be received by a named executive officer may differ in material respects from the amounts set forth below. All dollar amounts set forth below have been rounded to the nearest whole number.
Name
Cash(1)
Equity(2)
Perquisites /
Benefits(3)
Total
Kenneth Fasola – Chief Executive Officer
$6,073,973
$8,833,438
$17,354
$14,924,765
David Bourdon – Chief Financial Officer
$1,975,510
$1,000,004
$24,845
$3,000,359
Jonathan Rubin – Former Chief Financial Officer
$0
$0
$0
$0
James Murray – President and Chief Operating Officer
$797,158
$5,789,578
$12,480
$6,599,216
Mostafa Kamal – Chief Executive Officer, Magellan Rx Management
$2,160,741
$4,791,493
$18,849
$6,971,083
David Haddock – General Counsel and Secretary
$550,243
$2,131,807
$6,810
$2,688,860
(1)
The amounts listed reflect “double-trigger” payments payable to each of the named executive officers on a Qualifying Termination occurring during the applicable protection period set forth under the Employment Agreements (which we refer to as the “Protection Period”) under each named executive officer’s Employment Agreement. For Mr. Fasola, these estimated cash severance payments consist of (i) three times the sum of base salary ($3,000,000) plus target bonus ($3,000,000) and (ii) pro-rata annual bonus ($73,973). For Mr. Bourdon and Mr. Kamal these estimated cash severance payments consist of (i) two times the sum of base salary plus target bonus and (ii) pro-rata annual bonus. For Mr. Murray and Mr. Haddock these estimated cash severance payments are the regular amounts payable to each individual upon a Qualifying Termination that is not in connection with a Change in Control or during the applicable Protection Period and consist of the sum of base salary plus a pro-rata annual bonus for 2021. For Mr. Bourdon: (1) two times base salary: $1,050,000, (2) two times annual bonus: $892,500, and (3) prorated annual bonus: $33,010; for Mr. Murray: (1) one times base salary: $750,000, and (2) prorated annual bonus: $47,158; for Mr. Kamal: (1) two times base salary: $1,180,998, (2) two times annual bonus: $944,798, and (3) prorated annual bonus: $34,945; and for Mr. Haddock: (1) one times base salary: $525,000, and (2) prorated annual bonus: $25,243. Mr. Rubin terminated employment with the Company prior to the assumed effective date and is not entitled to amounts triggered by the Merger. For further details regarding the cash severance that may become payable to the Company’s named executive officers, see the section entitled “—Employment Agreements with Executive Officers,” beginning on page 65.
(2)
The amounts listed reflect the value that will be received by each named executive officer in respect of Company Options, Company RSUs and Company PSUs upon a Qualifying Termination during the Protection Period and for Mr. Fasola, the value of the accelerated vesting of a portion of his outstanding Company RSUs and Company PSUs immediately following the Effective Time. The amounts listed in the table below are “double-trigger” payments that are payable to each of the named executive officers on a Qualifying Termination occurring during the Protection Period. The amounts listed in the table do not include the value of any Company Options, Company RSUs, or Company PSUs that may be granted in calendar year 2021. Company PSUs are calculated based on the target number of shares subject to such award. For further details regarding the treatment of Company equity awards in connection with the Merger, see the sections entitled “—Treatment of Outstanding Equity Awards; Company ESPP” beginning on page 77, “—Employment Agreements with Executive Officers” beginning on page 65, and “—New Arrangement with Centene” beginning on page 68. The following supplementary table shows this “double-trigger” value by type of award:
Name
“Double Trigger”
Company Options
“Double Trigger”
Company PSUs
“Double Trigger”
Company RSUs
Kenneth Fasola – Chief Executive Officer
$0
$2,536,701
$3,044,305
David Bourdon – Chief Financial Officer
$0
$398,824
$601,180
Jonathan Rubin – Former Chief Financial Officer
$0
$0
$0
James Murray – President and Chief Operating Officer
$249,981
$2,945,261
$2,594,337
Mostafa Kamal – Chief Executive Officer, Magellan Rx Management
$676,446
$2,403,038
$1,712,009
David Haddock – General Counsel and Secretary
$0
$969,653
$1,162,154
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The following supplementary table shows the “single-trigger” value for the portion of Mr. Fasola’s Company RSUs and Company PSUs that will accelerate and vest immediately following the Effective Time:
Name
“Single Trigger”
Company PSUs
“Single Trigger”
Company RSUs
Kenneth Fasola – Chief Executive Officer
$1,683,401
$1,569,031
(3)
For Mr. Fasola, Mr. Bourdon and Mr. Kamal, the amounts listed reflect the value of 18.0 times the monthly premium (if any) paid by the Company for health insurance coverage for the executive and the executive’s eligible dependents immediately prior to a Qualifying Termination during the Protection Period. These payments are “double-trigger” payments that are payable to these named executive officers on a Qualifying Termination occurring during the Protection Period. For Mr. Murray and Mr. Haddock, the amounts listed reflect the value of 12.0 times the monthly premium (if any) paid by the Company for health insurance coverage for the executive and the executive’s eligible dependents immediately prior to a Qualifying Termination that is not in connection with a Change in Control or during the applicable Protection Period. For further details regarding the perquisites and benefits that may become payable to the Company’s named executive officers, see the section entitled “—Employment Agreements with Executive Officers,” beginning on page 65.
The joint press release issued by Centene and Magellan on January 4, 2021, announcing their entry into the Merger Agreement indicated that members of Magellan's leadership team had agreed to join Centene to provide continuity to Magellan's strategy and leadership. As of the date of this proxy statement, none of Magellan's leadership team, other than Mr. Fasola (as described above), have agreed on specific roles or compensation arrangements with Centene.
Director and Officer Indemnification and Insurance
For at least six years after the Effective Time, Centene has agreed to cause the Surviving Corporation or its applicable subsidiaries to indemnify and hold harmless, and advance expenses to, any current or former officer, director or employee of the Company against any out-of-pocket costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities in connection with any actual or threatened action arising out of or relating to (i) the fact that such person is or was a director, officer, employee or agent of the Company or its subsidiaries, (ii) any acts or omissions occurring or alleged to occur prior to or at the Effective Time in such person’s capacity as a director or officer of the Company or its subsidiaries, whether asserted or claimed prior to, at or after the Effective Time or (iii) the Merger, the Merger Agreement or the transactions contemplated thereby, in each case, to the fullest extent permitted by applicable law, any applicable indemnification agreement between the Company or any of its subsidiaries and such person and the Company’s organizational documents in effect as of the date of the Merger Agreement.
Further, for at least six years after the Effective Time, Centene has agreed to cause the Surviving Corporation or its applicable subsidiaries to maintain in effect, for the benefit of any current or former officer, director or employee of the Company or its subsidiaries, a level and scope of directors’ and officers’ liability insurance coverage at least as favorable as the level and scope thereof set forth in the Company’s directors’ and officers’ liability insurance program in effect as of the date of the Merger Agreement, subject to an annual cap of 300% of the annual premium of the Company’s current policy. If the annual premiums payable for such insurance coverage exceed the annual cap, the Surviving Corporation will obtain a policy with the greatest coverage available for a cost equal to the annual cap. In the alternative, the Company may, in consultation with Centene, obtain a prepaid “tail” policy prior to the Effective Time that provides the current or former officers, directors and employees of the Company and its subsidiaries with directors’ and officers’ liability insurance for at least six years following the Effective Time; provided that the premium payable for such “tail” policy will not exceed the annual cap.
Certain Effects of the Merger
If the proposal to adopt the Merger Agreement is approved by the holders of a majority of the outstanding shares of Magellan common stock entitled to vote on such matter and the other conditions to the closing of the Merger are either satisfied or (to the extent permitted by applicable law) waived, Merger Sub will be merged with and into Magellan upon the terms set forth in the Merger Agreement. As the Surviving Corporation in the Merger, Magellan will continue to exist following the Merger as a wholly owned subsidiary of Centene.
Following the Merger, all of Magellan’s equity interests will be legally and beneficially owned by Centene, and none of Magellan’s current stockholders will, by virtue of the Merger, have any ownership interest in, or be a stockholder of, the Surviving Corporation or Centene after the completion of the Merger. As a result, Magellan’s current stockholders will no longer benefit from any increase in the value, nor will they bear the risk of any
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decrease in the value, of Magellan common stock. Following the Merger, Centene will benefit from any increase in Magellan’s enterprise value and also will bear the risk of any decrease in Magellan’s enterprise value.
Upon completion of the Merger, each Converted Share will be automatically cancelled and will cease to exist and will be converted into the right to receive the Merger Consideration. See the section entitled “The Merger Agreement—Merger Consideration Received by Magellan Stockholders,” beginning on page 76.
For information regarding the effects of the Merger on Magellan’s outstanding equity awards, see the section entitled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page 64, and the section entitled “The Merger Agreement—Treatment of Outstanding Equity Awards; Company ESPP,” beginning on page 77.
Magellan common stock is currently registered under the Exchange Act and trades on the NASDAQ under the symbol “MGLN.” Following the completion of the Merger, the shares of Magellan common stock will no longer be traded on the NASDAQ or any other public market. In addition, the registration of the shares of Magellan common stock under the Exchange Act will be terminated, and Magellan will no longer be required to file periodic and other reports with the SEC with respect to Magellan common stock. Termination of registration of Magellan common stock under the Exchange Act will reduce the information required to be furnished by Magellan to Magellan’s stockholders and the SEC, and would make certain provisions of the Exchange Act, such as the requirement to file annual and quarterly reports pursuant to Section 13(a) or 15(d) of the Exchange Act, the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement to furnish a proxy statement in connection with stockholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to Magellan to the extent that they apply solely as a result of the registration of Magellan common stock under the Exchange Act.
Consequences if the Merger is Not Completed
If the proposal to adopt the Merger Agreement is not approved by the holders of shares of Magellan common stock representing a majority of the outstanding shares of Magellan common stock entitled to vote on such matter or if the Merger is not completed for any other reason, you will not receive any consideration from Centene or Merger Sub for your shares of Magellan common stock. Instead, Magellan will remain a public company, and Magellan common stock will continue to be listed and traded on the NASDAQ. We expect that our management will operate our business in a manner similar to that in which it is being operated today and that holders of shares of Magellan common stock will continue to be subject to the same risks and opportunities as they currently are subject to with respect to their ownership of Magellan common stock. If the Merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of Magellan common stock, including the risk that the market price of Magellan common stock may decline to the extent that the current market price of Magellan common stock reflects a market assumption that the Merger will be completed. If the proposal to adopt the Merger Agreement is not approved by the holders of shares of Magellan common stock representing a majority of the outstanding shares of Magellan common stock entitled to vote on such matter or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely impacted.
In addition, if the Merger Agreement is terminated under specified circumstances, Magellan is required to pay Centene a termination fee of $76,530,000. For additional information, see the section entitled “The Merger Agreement—Termination Fees,” beginning on page 82.
Material U.S. Federal Income Tax Consequences of the Merger
The following discussion is a summary of certain U.S. federal income tax consequences of the disposition of Magellan common stock in the Merger to stockholders of the Company whose shares of Magellan common stock are converted into the right to receive cash in the Merger. This summary is for general information purposes only and does not purport to consider all aspects of U.S. federal income taxation that might be relevant to stockholders of the Company. This summary is based on current provisions of the Code, existing, proposed and temporary regulations thereunder and administrative and judicial interpretations thereof in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. Any such change could affect the accuracy of the statements and conclusions set forth in this discussion. We have not sought, and do not intend to seek, any ruling from the Internal Revenue Service (which we refer to as the “IRS”) or any opinion of counsel
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with respect to the statements made and the conclusions reached in the following summary, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS.
The summary applies only to stockholders of the Company in whose hands shares of Magellan common stock are capital assets within the meaning of Section 1221 of the Code. This summary does not address foreign, state or local tax consequences of the Merger, nor does it address the U.S. federal income tax consequences of the transactions to special classes of taxpayers (e.g., stockholders that beneficially own (actually or constructively) more than 5% of the total fair market value of the shares of Magellan common stock (except as specifically described below), small business investment companies, S corporations, regulated investment companies, real estate investment trusts, controlled foreign corporations, passive foreign investment companies, qualified foreign pension funds or qualified collective investment vehicles, persons that accumulate earnings to avoid U.S. federal income tax, cooperatives, banks and certain other financial institutions, broker-dealers, insurance companies, tax-exempt organizations, governmental organizations, retirement plans, stockholders that are, or hold shares of Magellan common stock through, partnerships or other pass-through entities for U.S. federal income tax purposes, trusts, United States persons whose functional currency is not the United States dollar, dealers in securities or foreign currency, traders that mark-to-market their securities, expatriates and former long-term residents of the United States, stockholders holding shares of Magellan common stock that are part of a straddle, hedging, constructive sale, conversion or other integrated security transaction for U.S. federal income tax purposes, stockholders who properly exercise appraisal rights with respect to their shares of Magellan common stock, stockholders who hold their shares of Magellan common stock as “qualified small business stock” or “section 1244 stock,” and stockholders who received shares of Magellan common stock in compensatory transactions (including pursuant to the exercise of employee stock options, stock purchase rights or stock appreciation rights, as restricted stock or otherwise as compensation). In addition, this summary does not address U.S. federal taxes other than income taxes (including any U.S. federal estate or gift tax consequences), any aspect of the U.S. alternative minimum tax or Medicare tax on net investment income, or any state, local or foreign tax consequence of the Merger.
This discussion does not address the tax consequences of acquisitions or dispositions of shares of Magellan common stock outside the Merger, or transactions pertaining to options or other equity awards of the Company in connection with the Merger.
For purposes of this summary, the term “U.S. Holder” means a beneficial owner of shares of Magellan common stock that, for U.S. federal income tax purposes, is or is treated as: (i) an individual who is a citizen or resident of the United States; (ii) a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income tax regardless of its source; or (iv) a trust, if (A) a United States court is able to exercise primary supervision over the trust’s administration and one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) have authority to control all of the trust’s substantial decisions or (B) the trust has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes. For purposes of this summary, the term “Non-U.S. Holder” means a beneficial owner of shares of Magellan common stock (other than a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder.
If a partnership, or another entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds shares of the Magellan common stock, the tax treatment of its partners or members generally will depend upon the status of the partner or member and the partnership’s activities. Accordingly, partnerships or other entities treated as partnerships for U.S. federal income tax purposes that hold shares of Magellan common stock, and partners or members in those entities, are urged to consult their tax advisors regarding the specific U.S. federal income tax consequences to them of the Merger.
THIS DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS AND NON-U.S. HOLDERS. WE URGE U.S. HOLDERS, NON-U.S. HOLDERS AND OTHER BENEFICIAL OWNERS OF SHARES TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN
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LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING FEDERAL ESTATE, GIFT AND OTHER NON-INCOME TAX CONSEQUENCES, AND TAX CONSEQUENCES UNDER APPLICABLE U.S. TAX TREATIES AND STATE, LOCAL OR FOREIGN TAX LAWS, INCLUDING POSSIBLE CHANGES IN SUCH LAWS.
Tax Consequences to U.S. Holders. The exchange of shares of Magellan common stock for cash pursuant to the Merger will be a taxable transaction to U.S. Holders for U.S. federal income tax purposes. In general, a U.S. Holder who receives cash in exchange for shares of Magellan common stock pursuant to the Merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the amount of cash received (determined before the deduction of withholding taxes, if any) and (ii) the U.S. Holder’s adjusted tax basis in the shares of Magellan common stock surrendered for cash pursuant to the Merger. Gain or loss will be determined separately for each block of shares of Magellan common stock (that is, shares of Magellan common stock acquired at the same cost in a single transaction) surrendered for cash pursuant to the Merger. Such gain or loss would be long-term capital gain or loss, provided that the holding period for such block of shares of Magellan common stock is more than one year at the time of consummation of the Merger. Long-term capital gain recognized by certain non-corporate U.S. Holders is generally subject to U.S. federal income tax at preferential rates. The deductibility of capital losses by a U.S. Holder is subject to certain limitations.
Tax Consequences to Non-U.S. Holders. Generally, the exchange of shares of Magellan common stock for cash pursuant the Merger will not be a taxable transaction to Non-U.S. Holders for U.S. federal income tax purposes, unless: (i) the Non-U.S. Holder is an individual who was present in the United States for 183 days or more during the taxable year of the Merger and certain other conditions are met; (ii) the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States and, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or (iii) the Company is or has been a United States real property holding corporation, or “USRPHC,” for U.S. federal income tax purposes at any time within the shorter of the Non-U.S. Holder’s holding period and the five-year period preceding the Merger, the Non-U.S. Holder owned (directly, indirectly or constructively) more than 5% of the shares of Magellan common stock at any time within such period, and certain other conditions are satisfied.
In the case of clause (i) of the preceding paragraph, gain generally will be subject to tax at a flat rate of 30% (or such lower rate as may be specified under an applicable income tax treaty), which may be offset by certain U.S.-source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States). In the case of clause (ii) of the preceding paragraph, unless a tax treaty provides otherwise, gain will be subject to U.S. federal income tax at the rates generally applicable to a U.S. Holder (and such Non-U.S. Holder should generally provide an IRS Form W-8ECI). A Non-U.S. Holder that is a foreign corporation also may be subject to a 30% branch profits tax (or applicable lower treaty rate) with respect to gain recognized under clause (ii). In the case of clause (iii), Non-U.S. Holders that have actually or constructively owned more than 5% of the shares of Magellan common stock should consult their tax advisors regarding the process for requesting documentation from the Company to establish whether the Company is a USRPHC for U.S. federal income tax purposes and any consequences with respect thereto. Non-U.S. Holders are urged to consult their tax advisors with respect to the particular U.S. federal, state, and local, or foreign tax consequences the Merger and the effect of any applicable tax treaties.
Information Reporting and Backup Withholding. Information reporting and backup withholding (at a rate of 24%) may apply to the proceeds received by a holder pursuant to the Merger. Backup withholding generally will not apply to (1) a U.S. Holder that furnishes a correct taxpayer identification number and certifies under penalty of perjury that such U.S. Holder is not subject to backup withholding on IRS Form W-9 (or a substitute or successor form) or (2) a Non-U.S. Holder that (a) provides a certification signed under penalty of perjury of such Non-U.S. Holder’s foreign status on the appropriate series of IRS Form W-8 (or a substitute or successor form) or (b) otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
The tax discussion set forth above is included for general information only and is not tax advice. You are urged to consult your tax advisor to determine the particular tax consequences to you of the Merger, including the applicability and effect of U.S. federal, state, local, foreign and other tax laws and treaties.
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The U.S. federal income and other tax consequences to holders or beneficial owners of options or other equity awards participating in the Merger or transactions in connection with the Merger with respect to such options or equity awards are not discussed herein and such holders or beneficial owners are strongly encouraged to consult their own tax advisors regarding such tax consequences.
Treatment of Existing Debt; Financing
The closing of the Merger is not conditioned upon Centene’s obtaining any financing.
In connection with the Merger, the parties intend to repay in full and terminate Magellan’s existing credit facility and effect the release or termination of any liens and guarantees, and the return of any possessory collateral, in connection with such repayment. In addition, Magellan will use its reasonable best efforts to deliver to Centene an executed waiver letter with respect to its continuing agreement for standby letters of credit that provides for the waiver of the change of control under such agreement and other defaults or events of default triggered by the transactions contemplated by the Merger Agreement.