Coventry Health Care, Bethesda, Md., agreed to acquire First Health Group Corp., Downers Grove, Ill., for $1.8 billion in cash and stock in an effort to expand its geographic reach and keep pace with larger health-insurance competitors. The deal, the latest in a string of large insurance industry mergers, would create a health insurer with a presence in all 50 states and about $6.2 billion in annual revenue. Coventry currently covers 2.4 million members in 13 states; First Health, whose clients are mostly self-funded, does not disclose its membership, a spokeswoman said. The largest planned merger so far -- Anthem's acquisition of WellPoint Health Networks -- has a transaction value of $16.4 billion.
The Coventry-First Health deal calls for the exchange of a 0.1791 Coventry share plus $9.375 in cash for each First Health share. It is expected to close in the first quarter of 2005, pending regulatory approval. First Health would be by far the largest acquisition for Coventry, which has traditionally bought struggling local health plans and turned them around. Coventry said the merger would add 30 cents to 36 cents to its 2005 earnings per share and generate up to $100 million in savings by the end of 2007. Separately, Coventry announced third-quarter net income of $87 million, or 96 cents per share, up 29% from the year-ago period. Operating revenue rose 15.6% to $1.33 billion. -- by Laura B. Benko