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Aetna buys NYLife unit
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March 16, 1998: 10:53 a.m. ET
$1.35 billion buyout comes as giant health insurer faces integration woes
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NEW YORK (CNNfn) - Aetna Inc. is not letting a little indigestion stand in the way of its next course.
Nearly two years into a consolidation struggle stemming from its last major purchase, the vast health insurer said Monday it will pay as much as $1.35 billion to acquire New York Life Insurance Company's health-care operations, NYLCare.
Under the transaction, slated for closing in the third quarter, Aetna (AET) will pay $1.05 billion in cash for NYLife's health businesses, encompassing several major metropolitan markets across the country.
Aetna may pay an additional $300 million beginning in the year 2000, contingent upon pre-determined earnings and membership objectives. The purchase will be financed with cash and preferred stock.
The deal, if completed, would add nearly 2.2 million members to Aetna's membership of nearly 13.7 million. It would also substantially extend Aetna's reach into major metropolitan areas like Washington, D.C., Houston and Dallas where NYLCare has its biggest health maintenance organizations.
Yet, the dimensions of the deal have raised questions among some analysts who note that Aetna is still struggling to digest U.S. Healthcare Corp., which it bought for $8.2 billion in 1996.
Last September, Aetna took a steep $103 million third-quarter after-tax charge, leading analysts to pare their expectations for company earnings in 1997.
But Richard L. Huber, Aetna's chairman and chief executive officer, sought to downplay any lingering integration concerns. In a statement, he said the merger marked "another important step" in his company's strategy to grow its health business.
He also reassured investors that in acquiring New York Life, Aetna would "minimize the potential for service disruptions." Adopting a cautious tone, Huber said Aetna would seek to integrate NYLife's smaller "more easily absorbed" markets first while running parallel systems in the larger markets.
He expressed hope that the integration of the companies could be "substantially" completed by the end of the year 2000.
"Our ability to maintain quality service while we integrate NYLCare into Aetna U.S. Healthcare's operation's is of critical importance," Huber said. "We already have plans for integration based on a market-by-market approach, and we intend to proceed on a gradual, paced timetable."
New York Life, the nation's fourth-largest insurer, said the deal will help it concentrate on its three remaining businesses, which include life insurance, annuities and asset management.
Last year, Aetna posted net income of more than $900 million on revenue of over $18.5 billion. NYLCare reported a 1997 net loss of $30 million on revenues of $3.1 billion.
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