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PHILADELPHIA-CIGNA Corp. aims to strengthen its health care business and enhance its competitive position by acquiring Healthsource Inc. for $1.7 billion in cash.

Under terms of the definitive agreement announced late last week, CIGNA will pay $21.75 per share in cash for all outstanding shares of Hooksett, N.H.-based Healthsource. That puts the purchase price at about $1.7 billion, including about $250 million of outstanding long-term debt. CIGNA expects to commence the tender offer this week. Regulatory approval is required for the transaction.

"Health care is our largest and most profitable business," Wilson H. Taylor, CIGNA's chief executive officer, said in a release. "Healthsource provides us with access to new markets, enhances our competitive position in others and fits well with our managed care and indemnity businesses."

In 1996, CIGNA Healthcare ranked as the second-largest HMO in the United States, covering 4.4 million lives (BI, Dec. 27, 1996).

Healthsource operates HMOs in 15 states, covering about 1.1 million members. It also maintains national medical and dental indemnity books of business covering about 4.5 million people.

Combined, CIGNA Healthcare would operate HMOs with total membership of 5.3 million members, maintaining its No. 2 ranking behind Kaiser Permanente. CIGNA's medical indemnity business after the merger would cover 7 million lives.

Healthsource's stock price closed at $20.88 on Friday, up 24% from the day earlier.