(Adds executive severance)
By Caroline Humer
NEW YORK May 2 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
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
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
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
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
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)