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Unisys jettisons Medicare processing biz

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Server and outsourcing supplier Unisys - which seems to have been restructuring itself since mainframe makers Sperry and Burroughs were mashed up in 1986 - is rejigging itself once again. This time, the company is selling off its health information management business to raise some cash.

Unisys said this morning that Molina Healthcare - which sells managed care applications and services related to the US Medicaid program - is tapping its credit facility to come up with $135m in cash to acquire the Unisys healthcare unit. The unit is involved in Medicaid processing on behalf of the states of Idaho, Louisiana, Maine, New Jersey, and West Virginia and handles drug rebate processing for the state of Florida's Medicaid program.

Unisys says that this business generates about $110m in revenues a year. There was no word on how profitable it might be, but considering the 22.7 per cent premium that Molina is paying and that the unit does processing for linking state medical systems to federal systems, it is reasonable to assume there are some profits for the HIM unit.

Unisys said that it expects the sale of the HIM unit to Molina to be completed some time in the first half of 2010, provided that regulatory bodies and the state customers who use HIM approve of the sale. The 900 employees who create and run the HIM applications on behalf of the states as they go after their Medicaid funding from Uncle Sam are going to move over to Molina. Unisys is being asked to provide transactional and tech support services to Molina relating to the HIM unit for the next year.

Molina Healthcare was founded in California in 1980 by David Molina, who opened up clinics in Long Beach to serve poor neighborhoods. The company is now involved in healthcare processing (both Medicaid and Medicare) and offers plans in ten states (California, Florida, Michigan, Missouri, New Mexico, Ohio, Texas, Utah, and Washington).

It has grown to $3.7bn in sales with relatively modest profits, expected to be on the order of only $30m this year. The wonder is why Unisys didn't acquire Molina and sell off its server business. (I am joking. Mostly.)

Molina has a market capitalization of a mere $593m, and while its profits are under pressure because of state budget cuts and the H1N1 flu, it is hard to imagine that healthcare reform in the United States will actually lower the cost of providing insurance. With the expertise that Unisys could bring to bear, a combined Molina-Unisys could be aggressive and try to become the low-cost producer of Medicaid and Medicare processing.

It is astounding how much Unisys has contracted in the more than two decades since it was formed. When Sperry and Burroughs merged in September 1986, the $4.8bn deal was the largest merger ever in the IT sector, creating a $10.5bn IT powerhouse with 120,000 employees - about a quarter the size of IBM. Today, Unisys has 26,000 employees and somewhere north of $5bn in sales - about one-fifteenth the employees at Big Blue and about one-twentieth the annual sales of its mainframe rival.

For the moment, Unisys seems keen on carving out a niche for itself in providing secure networks and data processing and other security services. The company announced its Secure Cloud public cloud service in June 2009 and followed it up with the Secure Private Cloud, an on-premises version of the same cloud, last November.

Unisys reports its results for 2009 on February 4, and we'll see how the deal with boost the company's profits and balance sheet then. ®

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