UPDATE 2-Magellan Health to buy Coventry unit for $110 mln

* Magellan Health sees deal adding $0.05 to EPS in 2009

* Magellan Health inks 3-year service deals with Coventry

* Magellan Health shares rise almost 7 pct

(Adds Magellan Health comments from conference call, updates share movement)

June 5 (Reuters) - Magellan Health Services Inc (MGLN.O) said it agreed to buy a unit of insurer Coventry Health Care Inc (CVH.N) for $110 million in order to expand its Medicaid capabilities.

Magellan Health, which provides a network of doctors and hospitals to its members, expects the transaction to add 5 cents a share to its 2009 earnings.

The company said it expects Coventry's unit First Health Services Corp to generate revenue of about $60 million and segment profit of $7.5 million for the five months of 2009 post acquisition.

First Health Services provides pharmacy benefits administration (PBA), health care management, and IT services to state Medicaid programs.

"We see the greatest growth potential in First Health Services' pharmacy benefits administration business, and this is our primary driver in the acquisition," Magellan Health's Chief Executive Rene Lerer said on a conference call.

Magellan Health expects the PBA business to contribute about 60 percent to First Health Services' revenue for the remaining five months of 2009.

Magellan Health, which expects to close the deal in the third quarter, said it will fund the acquisition with cash on hand.

Separately, Coventry said it would incur a one-time loss of about 55 cents to 60 cents a share related to the deal.

Coventry expects to use proceeds from the transaction for debt reduction and share repurchases, resulting in an about neutral impact to earnings per share for the remainder of 2009.

Magellan Health also entered into three-year agreements with Coventry to manage radiology services on a risk basis and provide oncology management services.

Magellan Health expects to earn annual revenue of $150 million from the radiology contract after full implementation, and sees the deal adding $20 million to 2009 revenue.

Magellan Health shares were up nearly 7 percent at $31.44 in Friday morning trade on Nasdaq. Coventry shares were up 32 cents at $18.31 on the New York Stock Exchange.

For the alerts double-click [ID:nWNAB7012] [ID:nWNAB7027]. (Reporting by Anand Basu in Bangalore; Editing by Aradhana Aravindan)