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UPDATE 3-Molina board removes CEO and CFO, long-time execs and founder's sons
May 2, 2017 / 6:46 PM / 5 months ago

UPDATE 3-Molina board removes CEO and CFO, long-time execs and founder's sons

(Adds executive severance)

By Caroline Humer

NEW YORK, May 2 (Reuters) - Molina Healthcare Inc has fired its two top executives, sons of the small health insurer’s founder, in a surprise shakeup prompted by its poor financial performance, the company said on Tuesday.

In January, Molina reported a loss due to the Obamacare individual insurance program and shares dropped 17 percent. On Tuesday, it reported a first-quarter net income of $1.37 per share.

Chief Executive Dr. J. Mario Molina and Chief Financial Officer John Molina, who are brothers and have managed the company for decades, will be replaced by Chief Accounting Officer Joseph White, its new chairman, Dale Wolf, said in a news release.

The Molina family, which started the company in 1980 and took it public, controls more than 20 percent of the company, through a trust and individual holdings. Large institutional investor Capitol World Investors is the next largest holder. Molina will seek a permanent CEO and White will remain CFO, the company said.

According to the company’s proxy filing filed in March, Mario Molina is entitled to a payout worth nearly $20 million in cash and stock and John Molina is entitled to a payout worth more than $10 million. They remain on the board.

Capitol World declined to comment. A Molina spokeswoman sent a reporter to an external spokesman, who said that the Molinas were not available for comment and declined to comment beyond the release.

Molina shares closed up 18 percent, or $8.95, at $59.75.

“Investors are likely hoping that the management changes could lead to either future improved operational performance and/or a change in the board’s views on strategic directions,” Credit Suisse analyst Scott Fidel said in a research note.

Wolf had been a director before Dr. Molina was ousted from the chairman job. The lead independent director is Ronna Romney, a Republican politician who was once married to the brother of former Republican presidential candidate Mitt Romney and is the mother of the Republican National Committee chairwoman, Ronna Romney McDaniel.

MOUNTING OBAMACARE ISSUES

Molina specializes in the Medicaid program for the poor, but in 2014 it branched out into the individual insurance plans created under the Affordable Care Act, popularly known as Obamacare. It was a small business until 2017, when Molina’s Obamacare program ballooned to more than 1 million members in 9 states, a result of other insurers having dropped out.

Dr. Molina had been a staunch supporter of Obamacare, saying the insurer was managing its costs well. But that changed late last year as premiums failed to cover the payments made into the program’s risk adjustment mechanism.

Dr. Molina, who was reassured at first by promises from President Donald Trump’s administration that it would not pull the rug out from under insured Americans as it sought to repeal and replace Obamacare, became a fierce public critic of the healthcare bill proposed by the U.S. House of Representatives.

He spent time in Washington talking to policymakers and was quoted by the national press, including the New York Times, about his concerns.

Last Thursday, Dr. Molina sent congressional leaders a letter in which he promised to send the government a notice of default if it did not back the subsidies that help members pay for out-of-pocket costs, drop as many as 700,000 members this year and warned that Molina might leave the market in 2018.

The company moved its shareholder meeting to May 10 from Wednesday and said it would send out new proxy materials. (Reporting by Caroline Humer, Mike Erman and Carl O‘Donnell; Editing by Diane Craft, Richard Chang and Jonathan Oatis)

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