United HealthCare to Acquire Humana in $6.23-Billion Deal

United HealthCare Corp. said Thursday it will buy Humana Inc. for about $6.23 billion in stock and assumed debt, as one of the largest health-plan operators seeks to extend its reach nationwide and cut costs. The merger is part of a consolidation wave in the health-care industry, spurred by rising medical costs and intense competition.

The transaction calls for United HealthCare to exchange one of its shares for every two Humana shares and assume $850 million in debt.

The combined company would have annual revenue of about $27 billion. It would operate initially under the United HealthCare name and be based in Minneapolis, while a substantial work force would remain in Louisville, Ky., where Humana is based.

Jobs will be cut, company executives said, but they declined to be more specific. United has 30,000 employees and Humana has 20,000.

With Humana, United would have more than 10 million health-plan members, putting it head-to-head with Aetna Inc. for the lead. United would extend its coverage to 48 states and Puerto Rico and would be the leader in the Chicago, Florida, Texas and Ohio markets, among others.

On the New York Stock Exchange, Humana closed at $29.88, up $3.63, while United HealthCare fell $1.63 to close at $62.50.

United and Humana, which were among the first health plans to boost premiums as costs began rising faster than expected, plan to cut operating costs as much as 5% and medical costs as much as 1%.

The companies said they want to use their increased size to cut costs in contracts with physicians, hospitals and medical equipment makers, among others. The acquisition is expected to be neutral to earnings in 1998 and raise them in 1999, the parties said.

William McGuire, United’s chairman and chief executive, would retain his posts. Humana’s co-founder and chairman, David Jones, would join United’s board. Other leadership roles haven’t been defined, including that of Humana Chief Executive Greg Wolf.