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Anthem Inc., Indianapolis, has agreed to acquire Trigon Healthcare Inc., Richmond, Va., for a combination of $1.1 billion in cash and $2.8 billion in Anthem stock.

Anthem, which recently demutualized, already holds Blue Cross and Blue Shield licenses in nine states. It provides or administers major medical coverage for 8.1 million U.S. residents.

Trigon is a for-profit, publicly traded company that holds the Blue Cross and Blue Shield licenses for most of Virginia. It ranks first in the Virginia market, with 2.2 million major medical members and a 35% market share.

Completing the deal would give Anthem a total of 10.3 million members, a leading market share in nine states, and a market share over 30% in seven states.

Larry Glasscock, Anthems president, emphasizes the value of Trigon as a door into the thriving Southeastern health insurance market.

Trigon reported $35 million in net income for the first quarter on $826 million in revenue, up from $32 million in net income on $728 million in revenue for the first quarter of 2001.

The price Anthem has agreed to pay would be equal to about $1,800 per major medical member.

The price is also equal to a rich 34 times total net income for the last 12 months, and 369% of book value, according to SNL Financial L.C., Charlottesville, Va.

“The proposed transaction values Trigon at higher price-to-earnings and price-to-book multiples than other managed care acquisitions since the beginning of 1999,” SNL insurance analysts wrote.

Kansas insurance regulators are fighting Anthems efforts to acquire Blue Cross and Blue Shield of Kansas, Topeka, which has a 40% market share in Kansas, arguing the Kansas Blue deal would be anti-competitive.

The Trigon deal announcement came out just a few hours before the U.S. General Accounting Office released results of a survey focusing on competition in the small-group health insurance market. The GAO conducted the survey because of concern expressed by Sen. Christopher Bond, R-Mo., that competition in the small-group health insurance market might be dwindling.

Anthem itself, in an earnings release accompanying the Trigon deal announcement, emphasizes that its operating revenue grew throughout the country in the first quarter in part because of “disciplined pricing.”

Commercial medical costs have increased about 13% in the past 12 months, but Anthems own premium yield has increased about 15%, the company says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, May 6, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.