<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
DATE OF REPORT: FEBRUARY 27, 1998
DATE OF EARLIEST EVENT
REPORTED: FEBRUARY 12, 1998
</TABLE>
MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter).
<TABLE>
<S> <C> <C>
DELAWARE 1-6639 58-1076737
(State of incorporation) (Commission File Number) (IRS Employer Identification
No.)
</TABLE>
<TABLE>
<S> <C>
3414 PEACHTREE ROAD, N.E., SUITE 1400, ATLANTA, 30326
GEORGIA
(Address of principal executive offices) (Zip Code)
</TABLE>
(404) 841-9200
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 12, 1998, a wholly-owned subsidiary of the Registrant (the
"Company" or "Magellan"), MBC Merger Corporation, merged with Merit Behavioral
Care Corporation ("Merit") whereby Merit became a wholly-owned subsidiary of the
Company.
The Company acquired all of the outstanding stock of Merit for approximately
$448.9 million in cash plus the repayment of long-term debt. The Company
refinanced its $375 million 11.25% Senior Subordinated Notes as part of the
Merit acquisition. The Company will account for the Merit acquisition using the
purchase method of accounting. Merit manages behavioral healthcare programs for
over 21 million covered lives across all segments of the healthcare industry,
including HMOs, Blue Cross/Blue Shield organizations and other insurance
companies, corporations and labor unions, federal, state and local government
agencies, and various state Medicaid programs.
In connection with the consummation of the Merit acquisition, the Company
consummated certain related transactions (together with the Merit acquisition,
collectively, the "Transactions"), as follows: (i) the Company terminated its
credit agreement; (ii) the Company repaid all loans outstanding pursuant to and
terminated Merit's existing credit agreement (the "Merit Existing Credit
Agreement"); (iii) the Company completed a tender offer for its 11 1/4% Series A
Senior Subordinated Notes due 2004 (the "Magellan Outstanding Notes"); (iv)
Merit completed a tender offer for its 11 1/2% Senior Subordinated Notes due
2005 (the "Merit Outstanding Notes"); (v) the Company entered into a new senior
secured bank credit agreement (the "New Credit Agreement") with The Chase
Manhattan Bank and a syndicate of financial institutions, providing for credit
facilities of up to $700 million; and (vi) the Company issued $625 million in 9%
Senior Subordinated Notes due 2008 (the "Notes").
The following table sets forth the sources and uses of funds for the
Transactions at closing (in thousands):
<TABLE>
<S> <C>
SOURCES:
Cash and cash equivalents...................................... $ 59,290
New Credit Agreement:
Revolving Facility (1)....................................... 20,000
Term Loan Facility........................................... 550,000
The Notes...................................................... 625,000
----------
Total sources................................................ $1,254,290
----------
----------
USES:
Cash paid to Merit shareholders................................ $ 448,867
Repayment of Merit Existing Credit Agreement (2)............... 196,357
Purchase of Magellan Outstanding Notes (3)..................... 432,102
Purchase of Merit Outstanding Notes (4)........................ 121,651
Transaction costs (5).......................................... 55,313
----------
Total uses..................................................... $1,254,290
----------
----------
</TABLE>
- ------------------------
(1) The Revolving Facility provides for borrowings of up to $150.0 million. The
Company had approximately $112.5 million available for borrowing pursuant to
the Revolving Facility after consummating the Transactions, excluding
approximately $17.5 million of availability reserved for certain letters of
credit.
(2) Includes principal amount of $193.6 million and accrued interest of $2.7
million.
(3) Includes principal amount of $375.0 million, tender premium of $43.4 million
and accrued interest of $13.7 million.
2
<PAGE>
(4) Includes principal amount of $100.0 million, tender premium of $18.9 million
and accrued interest of $2.8 million.
(5) Transaction costs include, among other things, expenses payable at closing
associated with the tender offers for the Magellan Outstanding Notes and the
Merit Outstanding Notes, the Notes, the Merit acquisition and the New Credit
Agreement.
The total consideration in the Merit acquisition was determined through
arm's length negotiations between representatives of Magellan and Merit. No
directors or officers of Magellan and its affiliates or Merit and its affiliates
had any material relationship prior to the Merit acquisition.
Magellan and its provider business affiliates and Merit and its behavioral
managed care affiliates transacted business in the ordinary course prior to the
Merit acquisition.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
FINANCIAL STATEMENTS
The Merit Financial Statements, together with the independent public
accountants' reports thereon, will be filed by amendment to this Form 8-K not
later than April 28, 1998.
PRO FORMA FINANCIAL INFORMATION
The Merit pro forma financial information will be filed by amendment to this
Form 8-K not later than April 28, 1998.
3
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
2(a) Agreement and Plan of Merger, dated October 24, 1997, among the Company, Merit
Behavioral Care Corporation and MBC Merger Corporation, which was filed as Exhibit
2(g) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1997 and is incorporated herein by reference.
99(a) Press release, dated October 27, 1997.
99(b) Press release, dated February 12, 1998.
</TABLE>
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 27, 1998 Magellan Health Services, Inc.
By: /s/ CRAIG L. MCKNIGHT
----------------------------------------------------------------------
Executive Vice President and
Chief Financial Officer
5
<PAGE>
EXHIBIT 99(a)
FOR IMMEDIATE RELEASE
- ---------------------
Magellan Investor Contact: Kevin Helmintoller
(404) 814-5742
Magellan Media Contact: Robert Mead
(212) 445-8208
Joel Weiden
(212) 445-8244
Merit Media Contact: Michael Lenahan
(201) 782-5910
MAGELLAN HEALTH SERVICES AND
MERIT BEHAVIORAL CARE CORPORATION ANNOUNCE MERGER
AGREEMENT
Magellan to Acquire All of Merit's Outstanding Stock for $460 Million,
Refinance Debt
- -------------------------------------------------------------------------------
ATLANTA, GA, AND PARK RIDGE, NJ OCTOBER 27, 1997 -- Magellan Health Services
(NYSE:MGL) and Merit Behavioral Care Corporation announced today that they
have signed a definitive merger agreement under which Magellan will acquire
Merit. The company will be the nation's leading specialty managed care
company, with $1.5 billion in revenues and 60 million covered lives across
the United States.
Under the terms of the agreement, Magellan will purchase all of Merit's
outstanding stock for approximately $460 million in cash. Magellan will also
refinance Merit's existing debt, including $100 million in 11.50 percent
senior subordinated notes, and Magellan's $375 million in 11.25 percent
senior subordinated notes. Chase Securities Inc. and Smith Barney, Inc. are
acting as Magellan's financial advisors. Chase Securities Inc. will provide
a fairness opinion, and Chase has committed to provide Magellan with $1.3
billion in debt financing. The transaction is subject to customary
regulatory approvals including Hart-Scott-Rodino clearance, and is expected
to close during the fourth quarter of 1997. Magellan said that it believes
the transaction will accelerate earnings per share growth. While the
transaction is expected to be modestly dilutive in year one, it is expected
to be significantly accretive in years two and three. Magellan will account
for the transaction through purchase accounting.
"The combination of Magellan and Merit creates the premier company in the
behavioral healthcare segment of specialty care management - an organization
capable of substantial growth and long-term industry leadership," said Mac
Crawford, Chairman, President and Chief Executive Officer of Magellan. "With
this transaction, we have substantially completed
- more -
<PAGE>
- 2 -
Magellan's transformation into a manager of care, providing our shareholders
with the ability to benefit from a company that possesses substantial growth
opportunities."
"While this transaction is clearly based on creating a platform for growth,
we also expect that there will be significant efficiencies realized over the
next three years through the integration of Merit and our other managed care
operations, Green Spring Health Services and Human Affairs International,"
continued Crawford. "During this integration, we are committed to making
sure every customer we serve and every individual whose care we manage
receives the uninterrupted, high quality service they have come to expect
from our companies."
Magellan's previously announced acquisition of Human Affairs International
(HAI) from Aetna/U.S. Healthcare is expected to close shortly.
"Merit will be a strong addition to the Magellan network, which has received
recognition of its excellent clinical systems, treatment protocols, advanced
information technology systems, outcomes monitoring and a high quality of
care delivered through an extensive provider network. By identifying and
drawing on the best practices from all our organizations, we will be capable
of setting an even higher standard of service and care in our industry," said
Crawford.
"There is a growing recognition in our society of the need for quality
behavioral healthcare for the millions of Americans who suffer form mental
illness. Magellan's approach as a care manager is not to restrict access or
reduce care costs regardless of patients' needs, but to offer a system of
proven treatment protocols and outcomes measurement that help restore and
maintain their good health. We believe this focus ensures that care is
provided in the most appropriate setting using the most effective treatment -
which ultimately results in the most efficient utilization of the benefits
our customers provide their employees or beneficiaries," continued Crawford.
"In a time of consolidation in our industry, the joining together of Magellan
and Merit represents a unique opportunity for our business, customers and
employees." said Albert S. Waxman, Ph.D., one of Merit's founders and its
Chairman and Chief Executive Officer. "Since our founding in 1986, Merit has
built both an impressive reputation for high quality behavioral healthcare
and a very strong record of growth. This transaction allows us to build upon
our achievements and be part of an organization capable of providing an even
higher quality of care."
"I am deeply proud of the accomplishments of our extremely talented employee
base and the growth they have helped achieve," continued Waxman. "We believe
that this union will result in greater opportunities for our employees to
continue to progress in their careers and succeed in the managed healthcare
arena."
Certain of the statements in this press release including, without
limitation, statements by Magellan regarding the dilutive and accretive
effects of the transaction, savings to be achieved after the transaction
close, acquisition and growth opportunities, consolidation, revenue, income
- more -
<PAGE>
- 3 -
and expectations as to Magellan's future performance, constitute
forward-looking statements contemplated under the Private Securities
Litigation Reform Act of 1995. Risk factors such as the ability to
successfully complete and integrate acquisitions could prevent Magellan from
achieving the growth, performance (including anticipated cost savings)
mentioned or consummating future acquisition opportunities. For a more
complete discussion of these and other risk factors, please see Exhibit 99
contained in Magellan's Annual Report on Form 10-K, as amended, for the
fiscal year ended September 30, 1996 filed with the Securities and Exchange
Commission on April 23, 1997 and Magellan's Form 10-Q for the quarter ended
June 30, 1997 filed on August 14, 1997.
Magellan Health Services, Inc. is one of the country's largest integrated
specialty managed healthcare companies. Its business unites include:
majority owned Green Spring Health Services, a leader in behavioral managed
care services; Magellan Public Solutions, serving public sector agencies with
privatized behavioral health services; Charter Advantage, an international
franchisor of behavioral health care systems; and 50 percent interest in
Charter Behavioral Health Systems, the largest operator of free-standing
behavioral health facilities in the U.S.
Merit Behavioral Care Corporation provides mental health and substance abuse
services and employee assistance programs to more than 21 million enrollees
and 800 clients across all 50 states through a national network of 36,000
staff and network providers and facilities. Merit clients include
corporations and other private employers, union trusts, insurance carriers,
HMOs, Blue Cross Blue Shield organizations and government entities. Merit
expects to report pro forma 1997 revenues, including the contributions of its
recent acquisition CMG Health Inc., of approximately $680 million. Kohlberg
Kravis Roberts, the investment firm, is Merit's majority shareholder.
# # #
<PAGE>
EXHIBIT 99(b)
FOR IMMEDIATE RELEASE
- ---------------------
- ---------------------
Investor Contact: Kevin Helmintoller
(404) 814-5742
Media Contact: Joel Weiden
(212) 445-8244
MAGELLAN HEALTH SERVICES ANNOUNCES SIMULTANEOUS COMPLETION
OF MERIT BEHAVIORAL CARE ACQUISITION, 11.25% SERIES A SENIOR
SUBORDINATED NOTE TENDER OFFER, ALL RELATED FINANCING AND
GREEN SPRING MINORITY SHAREHOLDER CONVERSION
- ------------------------------------------------------------------------------
ATLANTA, GA, February 12, 1998 -- Magellan Health Services, Inc. announced
today that the Company completed the acquisition of Merit Behavioral Care
Corporation ("Merit"). In connection with the acquisition, the Company also
completed the tender offer for its outstanding 11.25% Series A Senior
Subordinated Notes and Merit's 11.5% Senior Subordinated Notes. Funding for
these transactions came from the completion of a new $700 million Credit
Facility and a $625 million 9.0% Senior Subordinated Note offering. The
Company also announced that in conjunction with the financing, Green Spring
Health Service's four minority shareholders converted their minority
ownership position in Green Spring into 2.8 million shares of the Company's
common stock. The Company now owns 100% of Green Spring.
"Magellan is very pleased to welcome the Merit employees to the Magellan
group," said Mac Crawford, chairman, president, and chief executive officer
of Magellan. "I am excited about the significant strengths that Merit and
its employees bring to the Magellan specialty managed care companies and I'm
confident they will be a complementary addition to Magellan and a key part of
our strategy going forward."
Crawford continued, "The success of our new Senior Subordinated Note
offering demonstrates the market's confidence in our vision of creating the
largest specialty care manager in the country."
<PAGE>
-2-
"Magellan will now focus on combining the best practices from each of
our behavioral managed care organizations -- Human Affairs International,
Green Spring Health Services, and Merit Behavioral Care Corporation -- in an
effort to create a company that can provide a higher level of care and
service than each of the companies could individually. The combination of
excellent clinical systems, an extensive national provider network, advanced
treatment protocols, and a broad outcomes monitoring process will allow the
company to efficiently serve a diverse client base while making available the
most effective behavioral health treatment programs to approximately 56
million Americans."
Magellan's Managed Behavioral Health Care Division will be organized
around three key customer segments: (1) the Health Plan Division, focusing on
the needs of health insurance plans and their members; (2) the Corporate
Employer/Union Division, focusing on self-insured employers and unions, and
their employees and dependents; and (3) the Public Sector Division, focusing
on the needs of public purchasers of behavioral health care services and
their members and families.
Magellan Health Services, Inc. is one of the country's largest specialty
care managers. The Company manages the behavioral care of approximately 56
million lives with an additional 3.4 million members covered under
non-behavioral/specialty care contracts.
Certain of the statements in this press release, including, without
limitation, statements by Magellan concerning levels of care and services,
constitute forward-looking statements under the Private Securities Litigation
Reform Act of 1995. Risk factors such as the level of success in Magellan's
integration of its acquired companies and the operational success of the
acquired companies could have a material adverse effect on Magellan's
operations. For a more complete discussion of these and other risk factors,
please see "Cautionary Statements -- The Company" and "Cautionary Statements
- -- CBHS" in Magellan's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 filed with the Securities and Exchange Commission on
December 23, 1997.
# # #
