UnitedHealth Group, Minneapolis, agreed to acquire PacifiCare Health Systems, Cypress, Calif., for about $8.1 billion in cash and stock in what would be the second-largest health-plan merger ever. The acquisition would give UnitedHealth a stronger presence in the West and a better foothold in the expanding Medicare market. PacifiCare is already one of the nation's largest Medicare managed-care plans and intends to become a key player in the administration of the new Medicare prescription-drug benefit. Over the past year, UnitedHealth also has been pushing into the area, forming partnerships with Walgreen Co. and the AARP to market UnitedHealth offerings.
The acquisition -- involving about $2.2 billion in cash and 111.6 million shares -- is expected to close late this year or early next, pending approval by regulators and PacifiCare shareholders. For each share, PacifiCare shareholders would receive 1.1 shares of UnitedHealth stock plus $21.50 in cash. UnitedHealth said the deal should add 5 cents to 6 cents to the company's per-share earnings in the first 12 months after being completed. The acquisition would bring UnitedHealth within striking distance of 28.5 million-member WellPoint, Indianapolis, which was formed through the $16.4 billion merger of Anthem and WellPoint Health Networks in November 2004. UnitedHealth covers about 22 million members nationwide and earned $2.6 billion on revenue of $37.2 billion last year. PacifiCare has 3 million members, predominately on the West Coast, and earned $303.2 million on revenue of $12.3 billion last year.
UnitedHealth has completed several acquisitions over the past two years, including the purchases of Mid-Atlantic Medical Services for $3.95 billion in February 2004, Oxford Health Plans for $4.9 billion in July 2004 and Definity Health Corp. for $300 million in December 2004. PacifiCare staked its claim in the burgeoning market for individual and small-group insurance in December 2004, when it acquired American Medical Security Group for about $505 million.