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Molina Rises 14% in Debut Session

HMO raises $107 million from the offering, which may indicate a renewed investor interest in IPOs.

July 03, 2003|Debora Vrana | Times Staff Writer

Molina Healthcare Inc. of Long Beach had one of the best-performing initial public stock offerings of the year Wednesday when its shares rose 14% on the first day of trading.

The managed-care company, which specializes in serving low-income people receiving Medicaid, raised $107 million in net proceeds from the offering. Its stock closed at $20 a share in New York Stock Exchange trading, up from an offer price of $17.50 a share.

The Molina family has run the health maintenance organization for more than 20 years and retains an estimated 40% ownership stake in the firm worth about $250 million, analysts said.

Managed-care stocks in general were up Wednesday. Molina's strong debut, though, had more to do with the company's history of profitability than investor appetite for health-care stocks, IPO analysts said, and may signal renewed investor interest in initial public offerings.

After a heyday in the late 1990s, when hundreds of IPOs were offered each year to investors, with potential first-day gains of 100% or more, the IPO market has slowed to a standstill. There have been only a dozen initial public offerings this year, raising $2.8 billion, compared with 58 by this time last year that raised $22.6 billion, according to Thomson Financial, a New Jersey data firm.

"We haven't seen such a bad year for IPOs since disco was hot," said Tom Taulli, a corporate finance instructor at USC's Marshall School of Business. "But it's starting to turn. It appears that the broader markets have bottomed and we're going to see a lot more action in the fall."

David Menlow, head of IPO Financial.com in New Jersey, said, "There's no question about it, we're seeing some improvement."

The best-performing IPO so far this year has been IPayment Holdings Inc., a payment processor based in Nashville, whose stock rose 28% in its first trading day May 12, according to Thomson Financial.

Molina took advantage of Wall Street's continued enthusiasm for health-care stocks. Managed-care giant WellPoint Health Networks Inc. of Thousand Oaks has seen its stock price rise 20% this year. Shares of Virginia Beach, Va.-based Amerigroup Corp., another major Medicaid HMO specialist, has jumped 28%.

Molina was formed in 1980 by C. David Molina, an emergency room physician in Long Beach whose sons have run the company since his death. Molina has nearly half a million members in California and three other states. The company's profit jumped to $30.5 million last year, from $2.6 million in 1998.

Its first-quarter earnings rose to $8 million from $5.1 million a year earlier, according to the company's financial filings. Quarterly revenue was $192.1 million, compared with $144.4 million a year earlier.

Some industry analysts and consumer groups have criticized Molina for making too much money from government contracts while not doing more in the area of preventive care for its members.

But the company has attributed its financial success to its experience in serving culturally diverse communities.

The company expects to use the proceeds of its stock sale to expand the business, including improvement of technology. The deal was underwritten by Banc of America Securities and CIBC World Markets.

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