Magellan Health is Sitting on a Pile of Cash

Magellan Health Services (MGLN) calls itself "the country's leading diversified specialty health care management organization." The company's focus areas include behavioral health management, radiology benefits management, and specialty pharmacy management.

At March 31, 2008, the company's balance sheet showed $827 million in current assets, including $333 million in cash and equivs, $263 million in restricted cash, and $37 million in short term investments ($24 million of which was restricted). Total liabilities were $503 million, of which only $10 million was long-term debt / capital leases. (10Q here)

Shamrock Activist Value Fund, an arm of an investment firm chaired by Roy E. Disney, is pushing for change. It wants Magellan's board declassified and a large special dividend or stock repurchase program. In October 2007 Shamrock set forth an argument for a $12 per share special dividend. You can read Shamrock's letter to Magellan here and its presentation on the topic here.

Recent management turnover [CEO, CFO] has not helped inspire confidence in MGLN's shares which are currently trading near $37, not far from the 52 week low of $35.62. The market cap is about $1.5 billion.

Oppenheimer rates Magellan an Outperform (May 5, 2008) and has this to say: "Here's an interesting figure: 3.8x. That is how the market is currently valuing Magellan relative to our 2009 EBITDA projection. To say that the company's cash (34% of market cap) isn't being fully appreciated is a dramatic understatement. Granted, neither management nor the board has been in a big hurry to deploy the money, but it's hard to see how the company isn't falling on the radar of many financial buyers, given the valuation and cash stockpile."

I am currently researching the company and have no position in it at this time.