Aetna To Acquire Prudential Healthcare For $1 Billion
Aetna and The Prudential have entered into definitive agreements for Aetna to acquire the Prudential HealthCare business for $1 billion. The acquisition would add approximately 6.6 million health members to Aetna U.S. Healthcare's membership base, making Aetna the country's largest provider of health benefits, with approximately 22.4 million members and the nation's number one managed care company with 18.4 million managed care members, the company says. The transaction also would more than double Aetna's dental membership from approximately 7 million members to over 15 million.
"This is a compelling opportunity that should immediately add value for our shareholders and clearly establishes Aetna as a leader in health care, serving one in 10 Americans," said Richard L. Huber, Aetna chairman and chief executive officer.
Aetna expects the transaction to be accretive to operating earnings for 1999. The company anticipates achieving annual cost savings and synergies of approximately $130 million to $150 million after tax within 2-plus years after closing.
"The sale of our health care business is part of a continuing process to make Prudential more valuable to its policyholders and a world-class competitor," said Arthur F. Ryan, Prudential chairman and CEO. "We are taking advantage of the consolidation trend in the health care industry to divest Prudential of a valuable but non-core asset. Exiting the health care market will allow us to concentrate additional capital and resources on insurance and financial service—areas in which Prudential is accelerating its growth both in the U.S. and internationally.
"We actively sought a buyer for our health care division that shared our commitment to quality and the well-being of our members," Ryan added. "We are very pleased to be entrusting this business to a health care leader focused on service and quality."
Included in this transaction are the Prudential HealthCare HMO, POS, PPO, and indemnity health lines, as well as its dental business. The transaction does not include Prudential's Group Life & Disability Insurance operation, which is now part of its Institutional division.
The transaction is expected to be financed with fixed-income securities. The boards of both companies have approved it. It is expected to be completed in the second quarter of 1999, and is subject to approval by federal antitrust and state regulators, and other customary closing conditions.
"We plan to take the same deliberate approach that we have used for the integration of NYLCare, focusing on maintaining quality service throughout the integration period," Huber said. "Since Prudential HealthCare has already consolidated its service centers into four major locations, we will focus on the immediate integration of core functions and productivity improvements. While jobs will be affected, we plan to rely as much as possible on attrition and growth in our business as we streamline operations." He noted that the company plans to retain all four Prudential HealthCare service centers.
Prudential HealthCare operates managed health care plans in more than 40 major metropolitan locations serving 5 million health plan members nationwide.