Health Net Inc. said late Monday that UnitedHealth Group Inc. has agreed to acquire its northeast U.S. health insurance operations for about $510 million.
The deal covers 578,000 members in New York, Connecticut, and New Jersey. The operations are expected to have 2009 revenues of about $2.7 billion. The sale is subject to federal and state regulatory review, but the companies said they expect to close the transaction within 12 months.
The announcement follows a decision last week by the U.S. Department of Defense last week to take away the Woodland Hills managed care provider’s long-standing contract to provide health care to military personnel in 20 East Coast and Midwest states. Loss of the $2.8 billion contract to Aetna Inc. heightened speculation on Wall Street that Health Net would move quickly to divest its northeast operations, and might eventually consider acquisition offers for the entire company.
Health Net now covers roughly 6.6 million people through its commercial and military-related programs. Though executives earlier this year had discussed divesting other operations outside California, Chief Executive Jay Gellert said his company planned keep its Arizona operations and refocus on building its business in the Western United States.
“We determined that there are greater synergistic opportunities among our three Western health plans than we originally thought,” Gellert said in a statement.
Under terms of the deal, UnitedHealth will acquire Health Net’s traditional, HMO and PPO businesses in the three states, valued at roughly $450 million. UnitedHealth also will pay $60 million at close for the Medicare and Medicaid businesses and the renewal rights for the commercial membership. UnitedHealth, based in Minnetonka, Minn., is the nation’s largest health insurer by market value and considered the second largest by membership.
Health Net warned it may take $20 million in charges related to the deal.
Health Net shares closed down 26 cents, or nearly 2 percent, to $13.21 on the New York Stock Exchange, but rose 2 percent in after-market trading.
