Aiming to expand its Medicaid capabilities, Magellan Health Services Inc has worked out details for the $110 million acquisition of the First Health Services Corp unit of insurance company Coventry Health Care. Magellan has also entered into three-year agreements with Coventry for handling radiology services and providing oncology management services.

The acquisition of First Health Services Corp would likely enable the Avon, Connecticut-based Magellan Health - which provides a network of doctors and hospitals to its members - to generate revenue of almost $60 million and segment profit of $7.5 million during the post-acquisition five-month period of 2009.

About the takeover, Magellan's CEO Rene Lerer said: "We see the greatest growth potential in First Health Services' pharmacy benefits administration business, and this is our primary driver in the acquisition." 

Magellan expects to close the deal in the third quarter, planning to fund the acquisition with cash on hand. Meanwhile, Coventry is likely to use the proceeds from the deal for debt reduction and share repurchases, which would expectedly bring about a near neutral impact to earnings per share for the remaining part of 2009.

About the sale out of its First Health Services' unit - which caters to administration of pharmacy benefits, health care management, and IT services for Medicaid programs - the Bethesda-based Coventry said that the unit's business was not its primary focus.