updated 9/27/2005 1:05:26 PM ET 2005-09-27T17:05:26

WellPoint Inc., the nation’s largest health insurer, said Tuesday it has agreed to buy WellChoice Inc., an insurer with about 5 million customers in New York and New Jersey, for about $6.5 billion in cash and stock.

Better known as Empire Blue Cross Blue Shield, New York-based WellChoice is the largest health insurer in New York state. Previously a nonprofit, it converted to a profit-making venture in 2002 and went public.

Together, WellPoint and WellChoice will serve more than 33 million members in 14 states, the companies said.

Indianapolis-based WellPoint said it would pay $77.23 in cash and stock per WellChoice share, about 9.4 percent more than WellChoice’s closing price Monday.

WellPoint, which has about 28 million customers, also uses the Blue Cross and Blue Shield brand names for its subsidiaries. The company operates Blue Cross plans in 13 other states. It was formed last year, when Anthem bought WellPoint Health Networks Inc. and changed its name.

Larry C. Glasscock, WellPoint’s president and chief executive officer, said the companies did not expect any premium increases because of the deal.

“We believe there’s much to be gained by combining strengths of each organization,” he said. “Our combined companies strongly positioned to compete in the marketplace.”

The deal gives WellPoint a presence in the Northeast, particularly in the New York metropolitan area — with access to customers at large, nationwide companies.

The companies said they expected the transaction to close during the first quarter of 2006 pending stockholder backing and approvals by New York, New Jersey and federal regulators.

The merger is expected to be neutral to earnings this year but will boost profit beyond 2006, WellPoint said. The company is projecting pretax cost savings of $25 million in 2006, $50 million in 2007 and at least $125 million by 2010.

Michael Stocker, WellChoice’s president and chief executive officer, will become the new CEO of WellPoint’s northeast region.

Stocker said the merger would help WellChoice’s customers hold down the rising cost of health insurance.

“Our companies will be positioned to promote preventative health care (and) engage consumers in maintaining their own good health,” he said.

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