A large
Magellan Health Services
(NDAQ:MGLN) shareholder demanded that the heathcare company authorize a
special one-time dividend of $478 million or $12 per share, according
to a press release put out by the activist hedge fund. Shareholders are
hoping that the activist hedge fund can unlock value and jump the
company's somewhat stagnant shares.
Shamrock Activist Value
Fund, which owns a 4.6 percent stake in the company, said in a letter
to the board that they believe a return of excess capital at this time
would be well received by at least half of the shareholders they
surveyed. All surveyed believe that the current balance sheet is
sub-optimal and is suppressing shareholder value although they differ
on preferred methods of returning capital (namely, special dividends
vs. share repurchase).
"We believe that the Board has the
opportunity to dramatically improve shareholder value by taking
immediate action to optimize the Company's balance sheet," said fund
manager Arik Ahitou. "The Company's current forecast projects $12
million of debt and approximately $315 million of unrestricted cash at
year end."
Magellan does not agree, saying, "We believe it is
prudent to maintain our current capital position. In addition, our cash
needs for the business are fairly significant in '07. Given the current
incremental usage of cash for a new business and our active acquisition
review, we have decided at this point in time not to implement any
capital deployment strategies this quarter but we will continue to
review and assess this possibility on an ongoing basis as we have
stated to you previously."
In the end, the company has access to
$1.25 to $1.5 billion in capital from cash on hand and available debt
capacity which gives it the financial flexibility to leverage its
balance sheet and return some of this capital to shareholders. Clearly,
the company will then have enough left over from its credit lines to
pursue acquisitions and keep costs under wraps. Whether or not the
activist hedge fund pushes this further remains to be seen, but this is
definitely a stock
worth watching!
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