Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 1 of 10
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF PENNSYLVANIA
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`JEFFREY D. JUSTICE, II,
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`Plaintiff,
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`v.
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`Case No. ______________
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`JURY TRIAL DEMANDED
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`COMPLAINT FOR VIOLATION OF THE
`SECURITIES EXCHANGE ACT OF 1934
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`MAGELLAN HEALTH, INC., STEVEN J.
`SHULMAN, SWATI ABBOTT,
`CHRISTOPHER J. CHEN, KEN FASOLA,
`PETER A. FELD, MURAL R. JOSEPHSON,
`SCOTT MACKENZIE, LESLIE V.
`NORWALK, and GUY P. SANSONE,
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`Defendants.
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`Plaintiff, by his attorneys, for this complaint against defendants, alleges the following upon
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`personal knowledge with respect to himself, and upon information and belief based upon the
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`investigation of counsel as to all other allegations herein:
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`NATURE OF ACTION
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`1.
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`On January 4, 2021, Magellan Health, Inc. (“Magellan” or the “Company”) entered
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`into an agreement (the “Merger Agreement”) to be acquired by Centene Corporation (“Parent”)
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`and Mayflower Merger Sub, Inc. (“Merger Sub”) (together, “Centene”) (the “Proposed Merger”).
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`2.
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`Under the terms of the Merger Agreement, Magellan’s stockholders will receive
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`$95.00 per share.
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`3.
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`On February 19, 2021, defendants filed a proxy statement (the “Proxy”) with the
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`U.S. Securities and Exchange Commission (the “SEC”).
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`4.
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`As alleged herein, the Proxy fails to disclose material information regarding the
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`Proposed Merger, and defendants violated Sections 14(a) and 20(a) of the Securities Exchange
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`Act of 1934 (the “Exchange Act”).
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 2 of 10
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`JURISDICTION AND VENUE
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`5.
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`This Court has jurisdiction over the claims asserted herein pursuant to Section 27
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`of the Exchange Act because the claims asserted herein arise under Sections 14(a) and 20(a) of the
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`Exchange Act and Rule 14a-9.
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`6.
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`This Court has jurisdiction over defendants because each defendant is either a
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`corporation that conducts business in and maintains operations within this District, or is an
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`individual with sufficient minimum contacts with this District so as to make the exercise of
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`jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.
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`7.
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`Venue is proper under 28 U.S.C. § 1391(b) because a portion of the transactions
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`and wrongs complained of herein occurred in this District.
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`THE PARTIES
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`8.
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`Plaintiff is and has been continuously throughout all relevant times the owner of
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`Magellan common stock.
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`9.
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`Defendant Magellan is a Delaware corporation. Magellan’s common stock is
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`traded on the NASDAQ under the ticker symbol “MGLN.”
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`10.
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`Defendant Steven J. Shulman is Chairman of the Board of Directors of Magellan
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`(the “Board”).
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`11.
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`12.
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`13.
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`14.
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`15.
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`16.
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`Defendant Swati Abbott is a member of the Board.
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`Defendant Christopher J. Chen is a member of the Board.
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`Defendant Ken Fasola is Chief Executive Officer and a member of the Board.
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`Defendant Peter A. Feld is a member of the Board.
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`Defendant Mural R. Josephson is a member of the Board.
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`Defendant Scott MacKenzie is a member of the Board.
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 3 of 10
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`Defendant Leslie V. Norwalk is a member of the Board.
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`Defendant Guy P. Sansone is a member of the Board.
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`Defendants identified in ¶¶ 10-18 are referred to herein as the “Individual
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`17.
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`18.
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`19.
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`Defendants.”
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`SUBSTANTIVE ALLEGATIONS
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`20.
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`The Company manages the fastest growing, most complex areas of health,
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`including special populations, complete pharmacy benefits, and other specialty areas of healthcare.
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`21.
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`On January 4, 2021, Magellan entered into the Merger Agreement, under which
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`Magellan’s stockholders will receive $95.00 per share.
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`22.
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`The press release announcing the Proposed Merger provides as follows:
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`Centene Corporation (NYSE: CNC) and Magellan Health, Inc. (NASDAQ:
`MGLN) today announced that they have entered into a definitive merger agreement
`under which Centene will acquire Magellan Health for $95 per share in cash for a
`total enterprise value of $2.2 billion. The transaction, which was unanimously
`approved by the Boards of Directors of both companies, will broaden and deepen
`Centene’s whole health capabilities and establish a leading behavioral health
`platform. The combined platform lays the foundation by which the company will
`continue to invest and innovate for its members, enabling improved health
`outcomes and faster, diversified growth.
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`The combination brings together the companies’ complementary capabilities in
`behavioral health, specialty healthcare and pharmacy management. As a result of
`the transaction, Centene will establish one of the nation’s largest behavioral health
`platforms across 41 million unique members with enhanced capabilities to deliver
`better health outcomes for complex, high-cost populations. Magellan Health will
`also add to Centene’s leadership in government sponsored healthcare, bringing 5.5
`million new members on government-sponsored plans. Magellan Health also
`provides specialty health services for 18 million third-party customer members in
`addition to Centene’s own members. Furthermore, the transaction adds 2 million
`PBM members and 16 million medical pharmacy members, enhancing the scale of
`Centene’s pharmacy platform with leading capabilities in specialty drug
`management. As part of Centene’s Health Care Enterprises, Magellan Health will
`continue to independently support its existing customers and pursue growth
`opportunities. In addition, the transaction will create attractive shareholder returns
`through enhanced service capabilities, cross-sell opportunities and increased
`engagement with third-party customers. []
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 4 of 10
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`Organization and Leadership
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`Ken Fasola, CEO of Magellan Health, and other members of Magellan Health’s
`leadership team have agreed to join Centene to provide continuity to Magellan
`Health’s strategy and leadership.
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`Timing and Required Approvals
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`The transaction is subject to clearance under the Hart-Scott Rodino Act, receipt of
`required state regulatory approvals, the approval of the definitive merger agreement
`by Magellan Health’s stockholders and other customary closing conditions. In
`connection with the transaction, affiliates of Starboard Value LP, which own
`approximately 9.4% of Magellan Health’s outstanding shares of common stock in
`the aggregate, have entered into a merger support agreement whereby they have
`agreed to vote their shares in favor of the transaction at Magellan Health’s special
`meeting.
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`The transaction is not contingent upon financing. Centene intends to primarily fund
`the cash portion of the acquisition through debt financing, and J.P. Morgan has
`provided a $2.381 billion bridge financing commitment. Upon closing, Centene
`expects its debt-to-capital ratio to be in the low 40% range, and intends to use its
`strong earnings and cash flows to achieve its targeted debt-to-capital ratio in the
`upper 30% range within 12 to 18 months post close.
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`Centene and Magellan Health expect to complete the transaction in the second half
`of 2021.
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`Advisors
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`Allen & Company LLC, J.P. Morgan Securities LLC and Barclays are serving as
`financial advisors to Centene, and Skadden, Arps, Slate, Meagher & Flom LLP is
`serving as its legal counsel. Goldman Sachs & Co. LLC and Guggenheim
`Securities, LLC are serving as financial advisors to Magellan Health, and Weil,
`Gotshal & Manges LLP is serving as its legal counsel.
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`23.
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`On February 19, 2021, defendants filed the Proxy, which fails to disclose material
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`information regarding the Proposed Merger.
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`Financial Analyses
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`24.
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`The Proxy fails to disclose material information regarding the financial analyses
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`performed by Goldman Sachs & Co. LLC (“Goldman”) and Guggenheim Securities, LLC
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 5 of 10
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`(“Guggenheim”), Magellan’s financial advisors. When a banker’s endorsement of the fairness of
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`a transaction is touted to shareholders, the valuation methods used to arrive at that opinion and the
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`key inputs and range of ultimate values generated by those analyses must be fairly disclosed.
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`25.
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`The Proxy fails to disclose the following regarding Goldman’s Illustrative
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`Discounted Cash Flow Analysis: (i) the inputs and assumptions underlying the discount rates and
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`perpetuity growth rates; (ii) the line items used to calculate unlevered free cash flows; (iii) the
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`terminal values; (iv) the basis for applying terminal year EBITDA exit multiples of 6.5x to 8x; (v)
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`the number of fully diluted shares of Magellan common stock; and (vi) net debt.
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`26.
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`The Proxy fails to disclose the following regarding Goldman’s Illustrative Present
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`Value of Future Share Price Analysis: (i) the basis for applying illustrative NTM P/E multiples of
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`16.0x to 24.0x; and (ii) the inputs and assumptions underlying the discount rate.
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`27.
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`The Proxy fails to disclose the following regarding Goldman’s Premia Paid
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`Analysis: (i) the observed transactions; and (ii) the premiums paid in each of the observed
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`transactions.
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`28.
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`The Proxy fails to disclose the following regarding Goldman’s Selected Precedent
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`Transactions Analysis: (i) the closing dates of the transactions; and (ii) the total values of the
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`transactions.
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`29.
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`The Proxy fails to disclose the following regarding Guggenheim’s Discounted Cash
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`Flow Analysis: (i) the inputs and assumptions underlying the discount rates and perpetuity growth
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`rates; (ii) the terminal values; and (iii) the line items used to calculate unlevered free cash flows.
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`30.
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`The Proxy fails to disclose the following regarding Guggenheim’s Selected
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`Precedent Merger and Acquisition Transactions Analysis: (i) the closing dates of the transactions;
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`and (ii) the total values of the transactions.
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 6 of 10
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`31.
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`The Proxy fails to disclose the following regarding Guggenheim’s Selected
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`Publicly Traded Companies Analysis: the basis for selecting trading price/adjusted earnings per
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`share multiples of 13.0x to 18.0x.
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`32.
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`The Proxy fails to disclose the following regarding Guggenheim’s Wall Street
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`Equity Research Analyst Stock Price Targets analysis: (i) the price targets observed; and (ii) the
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`sources of the price targets.
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`Financial Projections
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`33.
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`The Proxy fails to disclose material information regarding Magellan’s financial
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`projections. The disclosure of projected financial information is material because it provides
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`stockholders with a basis to project the future financial performance of a company, and allows
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`stockholders to better understand the financial analyses performed by a company’s financial
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`advisor in support of its fairness opinion.
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`34.
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`The Proxy fails to disclose the following regarding Magellan’s financial
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`projections: (i) the line items used to calculate unlevered free cash flow; and (ii) the line items
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`used to calculate EBITDA.
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`Background of the Proposed Merger and Potential Conflicts of Interest
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`35.
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`The Proxy fails to disclose how many confidentiality agreements executed by
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`Magellan include don’t ask, don’t waive (“DADW”) standstill provisions, and whether the DADW
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`provisions are still in effect and presently precluding any potential counterparty from submitting a
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`topping bid for Magellan. The Proxy also fails to disclose the circumstances under which the
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`Board is permitted to waive any standstill provisions.
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`36.
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`The Proxy fails to disclose the timing and nature of the past services Goldman
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`provided to Magellan and its affiliates.
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 7 of 10
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`37.
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`If disclosed, the omitted information would significantly alter the total mix of
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`information available to Magellan’s stockholders.
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`COUNT I
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`Claim Against the Individual Defendants and Magellan for Violation of Section 14(a) of the
`Exchange Act and Rule 14a-9
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`38.
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`Plaintiff repeats and realleges the above-referenced allegations as if fully set forth
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`herein.
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`39.
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`The Individual Defendants disseminated the false and misleading Proxy, which
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`contained statements that, in violation of Section 14(a) of the Exchange Act and Rule 14a-9, in
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`light of the circumstances under which they were made, failed to state material facts necessary to
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`make the statements therein not materially false or misleading.
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`40. Magellan is liable as the issuer of these statements.
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`41.
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`The Proxy was prepared, reviewed, and/or disseminated by the Individual
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`Defendants. By virtue of their positions within the Company, the Individual Defendants were
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`aware of this information and their duty to disclose this information in the Proxy.
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`42.
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`The Individual Defendants were at least negligent in filing the Proxy with these
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`materially false and misleading statements.
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`43.
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`The omissions and false and misleading statements in the Proxy are material in that
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`a reasonable stockholder will consider them important in deciding how to vote on the Proposed
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`Merger.
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`44.
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`A reasonable investor will view a full and accurate disclosure as significantly
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`altering the total mix of information made available in the Proxy and in other information
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`reasonably available to stockholders.
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`45.
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`The Proxy is an essential link in causing plaintiff to approve the Proposed Merger.
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 8 of 10
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`46.
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`Accordingly, defendants violated Section 14(a) of the Exchange Act and Rule 14a-
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`9.
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`47.
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`Plaintiff is threatened with irreparable harm.
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`COUNT II
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`Claim Against the Individual Defendants for Violation of Section 20(a) of the Exchange Act
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`Plaintiff repeats and realleges the above-referenced allegations as if fully set forth
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`48.
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`herein.
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`49.
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`The Individual Defendants acted as controlling persons of Magellan within the
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`meaning of Section 20(a) of the Exchange Act as alleged herein.
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`50.
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`Due to their positions as officers and/or directors of Magellan and participation in
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`and/or awareness of the Company’s operations and/or intimate knowledge of the false statements
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`contained in the Proxy, they had the power to influence and control and did influence and control,
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`directly or indirectly, the decision making of the Company, including the content and
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`dissemination of the various statements that plaintiff contends are false and misleading.
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`51.
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`Each of the Individual Defendants was provided with or had unlimited access to
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`copies of the Proxy alleged by plaintiff to be misleading prior to and/or shortly after these
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`statements were issued and had the ability to prevent the issuance of the statements or cause them
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`to be corrected.
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`52.
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`Each of the Individual Defendants had direct and supervisory involvement in the
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`day-to-day operations of the Company, and, therefore, is presumed to have had the power to
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`control and influence the particular transactions giving rise to the violations as alleged herein, and
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`exercised the same.
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`53.
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`The Proxy contains the unanimous recommendation of the Individual Defendants
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`to approve the Proposed Merger. They were thus directly involved in the making of the Proxy.
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 9 of 10
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`54.
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`Accordingly, the Individual Defendants violated Section 20(a) of the Exchange
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`Act.
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`55.
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`The Individual Defendants had the ability to exercise control over and did control
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`a person or persons who have each violated Section 14(a) of the Exchange Act and Rule 14a-9, by
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`their acts and omissions as alleged herein.
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`56.
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`57.
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`These defendants are liable pursuant to Section 20(a) of the Exchange Act.
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`Plaintiff is threatened with irreparable harm.
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`PRAYER FOR RELIEF
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`WHEREFORE, plaintiff prays for judgment and relief against defendants as follows:
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`A.
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`Preliminarily and permanently enjoining defendants and all persons acting in
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`concert with them from consummating the Proposed Merger;
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`B.
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`In the event defendants consummate the Proposed Merger, rescinding it and setting
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`it aside or awarding rescissory damages;
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`C.
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`Directing the Individual Defendants to disseminate a Proxy that does not contain
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`any untrue statements of material fact and that states all material facts required in it or necessary
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`to make the statements contained therein not misleading;
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`D.
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`Declaring that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act,
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`as well as Rule 14a-9 promulgated thereunder;
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`E.
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`Awarding plaintiff the costs of this action, including reasonable allowance for
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`plaintiff’s attorneys’ and experts’ fees; and
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`F.
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`Granting such other and further relief as this Court may deem just and proper.
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`JURY DEMAND
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`Plaintiff requests a trial by jury on all issues so triable.
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`Case 2:21-cv-01194-PBT Document 1 Filed 03/11/21 Page 10 of 10
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`Dated: March 11, 2021
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`By:
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`GRABAR LAW OFFICE
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`Joshua H. Grabar (#82525)
`One Liberty Place
`1650 Market Street, Suite 3600
`Philadelphia, PA 19103
`267-507-6085
`jgrabar@grabarlaw.com
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`Counsel for Plaintiff
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