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Two HMOs to join forces
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May 28, 1998: 8:53 a.m. ET
Humana, United HealthCare to merge in stock swap valued at $5.5 billion
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NEW YORK (CNNfn) - United HealthCare Corp. and Humana Inc. of Louisville, Ky., agreed to merge in a proposed tax-free stock swap valued at about $5.5 billion, both companies announced Thursday.
With Humana's 6 million managed care customers, the deal gives the Minneapolis, Minn.-based United HealthCare a considerable boost in its competition against industry giants such as Aetna Inc.
"It is critical to create an enterprise that, in an increasingly competitive marketplace, possesses the size, scale and operating efficiencies needed to accelerate investments," said Dr. William W. McGuire, chairman, president and chief executive.
Based on the definitive agreement, the proposed merger calls for every two Humana shares to be exchanged for one United HealthCare share. The transaction will be accounted for as a pooling of interests.
The merger is expected to be neutral to earnings this year and add to earnings in 1999, excluding transaction costs.
In addition, a "significant" amount of annual savings has been identified. These synergies come from consolidation of corporate overhead and administration, merging overlapping operations, integrating and improving medical care programs and cross-selling products and services.
"We are targeting improvements in operating costs of 3 percent to 5 percent, and medical costs of 0.75 percent to 1 percent," Dr. McGuire said.
The transaction will require shareholder and regulatory approvals and is expected to close in the third quarter of 1998.
The combined enterprise will operate under the United HealthCare name and will be based in Minneapolis, with a significant work force and business presence continuing in Louisville.
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