Southland HMO to Expand Into New Mexico

Molina Healthcare Inc. said Monday that it had agreed to buy a New Mexico managed-care company for $69 million as part of an effort to expand its Medicaid market.

The Long Beach health maintenance organization, which specializes in serving the poor and people on Medicaid, said the acquisition of Health Care Horizons of Albuquerque should begin boosting earnings as soon as it closes in the third quarter of this year. Molina estimated that the purchase would bring between $255 million and $265 million in annualized Medicaid revenue and would add 5 cents to 7 cents a share to income in the second half of 2004.

Health Care Horizons owns Cimarron Health Plan, a managed-care company that has been providing Medicaid coverage in New Mexico since 1997. Molina Healthcare said it planned to divest Cimarron’s 42,000 commercial members to focus on its 66,000 Medicaid members.

“This transaction, which is consistent with our expansion strategy, continues the diversification of our revenue stream, while providing a doorway into the attractive and growing New Mexico market,” Chief Executive J. Mario Molina said in a statement.

The HMO said it would pay cash and would also acquire about $5 million in bank debt belonging to Health Care Horizons. The acquisition has been approved by shareholders owning about 43.5% of the outstanding Health Care Horizons stock, Molina said.

The 24-year-old company, run by a family of physicians, went public last year, selling 6.6 million shares at $17.50 and raising $115.5 million on its first day of trading.

The Health Care Horizons purchase represents Molina’s first foray into New Mexico. In addition to California, the rapidly growing firm operates health plans in Washington, Michigan and Utah, with nearly 600,000 members.

Molina earned $42.5 million on sales of $793.5 million in 2003. Premium revenue rose nearly 24% from the year before to $789.5 million.

Health Care Horizons representatives did not return calls.

Molina announced the acquisition after the close of the New York Stock Exchange, where its shares rose 11 cents to $29.95.