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UnitedHealth agrees to buy Sierra Health Services for $2.6 billion cash

NEW YORK – Health insurer UnitedHealth Group Inc. on Monday agreed to buy Nevada-based health care services provider Sierra Health Services Inc. for about $2.6 billion.

The deal will add about 310,000 employer-sponsored health plan members in Nevada to UnitedHealth’s rolls as well as about 320,000 people from senior and government programs throughout the United States.

UnitedHealth is offering Sierra shareholders $43.50 cash per share, which represents a 21 percent premium to the stock’s Friday closing price on the New York Stock Exchange.

Sierra shares rose $5.72, or 15.9 percent, to $41.62 in morning trading on the NYSE while UnitedHealth shares rose 11 cents to $53.11.

The deal must be cleared by Sierra shareholders and regulators in Nevada, California and Texas. UnitedHealth expects the transaction to close by the end of the year at the latest.

Nevada ranks as one of the fastest-growing populations, according to the U.S. Census Bureau. The bureau estimates a 20.8 percent increase in Nevada’s population in the last five years to about 2.4 million people, compared with the national average of 5.3 percent growth. Sierra Health posted 2006 profit of $140.5 million on revenue of $1.72 billion.

UnitedHealth sees the deal adding about 4 cents per share to earnings in the first 12 months following the closing. Analysts surveyed by Thomson Financial expect the company to earn $3.98 per share in 2008. UnitedHealth said it will not include the additional earnings in its outlook until the transaction has closed.

Should the deal not close, Sierra will be obligated to pay a break-up fee of about $85 million under certain circumstances.

Minnetonka, Minn.-based UnitedHealth will fund the transaction with cash on hand, cash flow from operations and normal capital market activities.

Separately, UnitedHealth reiterated its intention to buy back about $4 billion to $4.5 billion in stock in 2007 under an ongoing share repurchase program. The company posted 2006 profit of $4.16 billion on revenue of $71.54 billion.