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ACQUISITION TO EXPAND WELLPOINT'S SIZE, REACH

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WOODLAND HILLS, Calif.-Acquiring the group life and health business of Massachusetts Mutual Life Insurance Co. would enable WellPoint Health Networks Inc. for the first time to compete for the business of large, multistate employers.

The proposed $380 million all-cash purchase would "enable us to compete where we had been at a disadvantage in the past," a WellPoint spokesman said. It would also make WellPoint the nation's second-largest publicly held managed care company, with nearly 4 million members in all 50 states. Only United HealthCare Corp. would be larger.

The deal also apparently satisfies disgruntled WellPoint shareholders. They had threatened to oust Chairman and Chief Executive Officer Leonard Schaeffer after the proposed merger with Health Systems International fell apart over a dispute between Mr. Schaeffer and his counterpart at HSI, Dr. Malik M. Hasan (BI, Dec. 18, 1995).

At a special Sunday meeting called to determine his fate, shareholders gave Mr. Schaeffer a unanimous vote of confidence. One day later, the deal with MassMutual was announced.

The acquisition, which requires the approval of Massachusetts and California regulators, would enable WellPoint to expand outside the saturated California market.

MassMutual's life and health business' "key East Coast location is an important strategic step in the geographical diversification of our business base," said Mr. Schaeffer in a statement.

MML Pension Insurance, the unit that WellPoint will acquire, covers 1 million people in 2,000 employer groups, primarily in the Northeast. About 60% of the people are in preferred provider or exclusive provider organizations and 40% in indemnity plans.

By contrast, WellPoint covers 2.8 million people, almost all in HMOs and point-of-service plans.

MassMutual's decision to unload MML Pension Insurance reflects the Springfield, Mass.-based company's realization that managed care is the wave of the future.

"During the past decade, the health insurance marketplace has demanded a more integrated variety of health care plans, centered around managed care," acknowledged Thomas B. Wheeler, MassMutual's president and CEO, in a statement. "Clearly, the best course for our life and health policyholders is the combination of our subsidiaries' well-established expertise with this high-quality managed care entity."

Both companies said a merger would not immediately affect policyholders.

"Our goal is not to move their members into an HMO, but to provide more product choices," the WellPoint spokesman explained.

For example, while MML offers its policyholders primarily indemnity, preferred provider and exclusive provider organization options, they will now have the additional choices of an HMO and a POS plan.

James E. Miller, executive vp of MML, will continue to head the unit after the acquisition. But he will report to Mark Weinberg, the executive vp responsible for WellPoint's national expansion.

Under terms of the transaction, WellPoint will pay $380 million in cash for MML. Closing, which is subject to regulatory approvals, is expected to occur by the end of the first quarter.

Meanwhile, Standard & Poor's Corp. placed MML's AAA claims-paying ability rating on CreditWatc