Molina Ousts Family Leaders, Sparking Takeover Speculation

(Bloomberg) -- Molina Healthcare Inc. will remove its top two executives in a surprise shake-up at the family-run insurer, raising speculation that the company could be sold and sending its shares soaring.

The company said it is replacing Chief Executive Officer J. Mario Molina and Chief Financial Officer John C. Molina, who are brothers. They'll be succeeded by Chief Accounting Officer Joseph White, who will become permanent CFO and serve as interim CEO while the company searches for a new chief. The Molinas will remain on the insurer's board for now, the company said in a statement Tuesday.

“In light of the company's disappointing financial performance, the board has determined to change leadership,” Chairman Dale Wolf said in the statement.

The shares jumped 18 percent to $59.75 at the close in New York, the biggest one-day advance since June 2012.

Analysts have long speculated that Molina could be a target for an acquisition, though the Molina family's role was seen as a potential barrier. 

Ana Gupte, an analyst at Leerink Partners, said the departure of the Molina brothers could lead to improved financial results, and increases the chance the company will be sold. Aetna Inc. and WellCare Health Plans Inc. are the most likely acquirers, she said.

Tom Carroll, an analyst at Stifel Financial, said the company will probably need to improve its results before it can be sold. He said Molina's margins have lagged behind those of rivals, even as it added customers.

“With the leadership change, a cultural shift may occur that drives efforts more directly to earnings growth,” Carroll said in a note to clients. “This news could increase market speculation about the sale of Molina to a larger” insurer.

Results Reported

Molina reported first-quarter results after the close. Adjusted net income was $1.47 a share, and the figure was bolstered by 84 cents a share by a termination fee the company received. Analyst expected adjusted profit of 58 cents a share on average. The company revised its profit outlook for the year to account for the termination fee. Molina now expects adjusted profit of $2.90 a share in 2017.

Molina is a specialist in Medicaid and the individual health insurance markets created by the Affordable Care Act, which have proven challenging for many firms. Molina posted net income of $52 million in 2016, down from $143 million a year earlier. Uncertainty over the fate of the Affordable Care Act had sent Molina's shares down about 14 percent since Donald Trump was elected president, pledging to repeal and replace Barack Obama's health law.

Mario Molina had run the company since 1996, when he took over from his father, who founded the health insurer. John Molina had been finance chief since the company went public in 2003.

White has been chief accounting officer since 2003, and was previously the finance chief at another health insurer.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett