Aetna Life and Casualty Co. said Monday it will acquire U.S. Healthcare Inc. in an $8.9 billion deal that would create the nation's biggest medical benefits company.
Combined, the companies provide health-care services to 23 million people, or one in every 12 Americans.The two companies will be merged under the name Aetna Inc., which will be based at Aetna Life's headquarters in Connecticut. U.S. Healthcare is based in Blue Bell, Pa.
Aetna said it expects the deal to add $300 million in profits within 18 months by reducing operating expenses and creating new rev-e-nues.
Aetna spokesman Fred Laberge said the merger will result in job cuts, but he said the number has not yet been determined. Other deals of this magnitude often have resulted in the elimination of thousands of overlapping jobs.
In addition to normal approvals by shareholders and government regulators, the deal is contingent on the successful completion of Aetna's $4 billion sale of its property-casualty insurance unit to Travelers Group, which is expected within days. That deal, announced in November, was meant to allow Aetna to concentrate on health care and financial services.
"This merger is a major step in our strategic plan to create an outstanding national health-care company," said Aetna chairman Ronald E. Compton. "It is an excellent strategic fit, and establishes a strong platform for growth."
The Aetna-U.S. Healthcare combination would be one of the largest mergers in the insurance business, continuing a trend of consolidation in the industry.
Together, the two companies have 10.3 million managed-care members.
Compton will be chairman and chief executive of the new entity. U.S. Healthcare chairman Leonard Abramson will join Aetna's board of directors.
Aetna has agreed to pay $34.20 in cash and 0.2246 of a share of its stock for each share of U.S. Healthcare. Based on the recent value of Aetna's shares, the deal values U.S. Healthcare at $57 a share, a premium of 24 percent over Friday's closing price at $45.88 a share, the companies said.