Molina Prices Stock Offering - Analyst Blog

Molina Healthcare Inc. (MOH) has priced its underwritten public offering of 4 million shares at $27.00 per share. The stock offering was announced on August 4.

 

According to the offering by Molina and the selling stockholders, the underwriters are given a month’s option to purchase up to 600,000 shares to cover over-allotments. Of this, 350,000 shares will be offered by Molina and the remainder by the selling stockholders.

 

BofA Merrill Lynch, a wing of Bank of America (BAC) and J. P. Morgan Securities Inc., a subsidiary of JPMorgan Chase & Co. (JPM) are the joint book-running managers for the offering, whereas UBS Securities LLC, a division of UBS AG (UBS), Mitsubishi UFJ Securities (USA) Inc., a unit of Mitsubishi UFJ Financial Group Inc. (MTU) and Stifel, Nicolaus & Company, Incorporated are acting as co-managers.

 

Molina stated that the proceeds from the stock offering will be utilized for the repayment of outstanding debt of $105 million under the company’s $200 million senior secured credit facility and for general corporate purposes.

 

We believe that Molina may also use the net proceeds for acquisitions. Molina has been expanding its geographic reach via acquisitions and adding to the consolidation of the industry. It acquired the Health Information Management business of Unisys Corporation (UIS) on May 2010 and signed an agreement on July 12, 2010 to buy Abri Health Plan to expand its footprint in the Wisconsin market.

 

The acquisitions are expected to add value to Molina’s business. However, Molina suffers from plummeting investment income resulting from lower interest rates, along with rising medical costs. Moreover, we believe that Molina will not be able to escape the adverse impact of the US Health Care Reform Act of 2010 on its products and services.