Aetna Inc. said Thursday that it is reducing its work force by 13%, or 4,400, and taking charges of $307 million as it moves to cut expenses after buying US Healthcare Inc.
Aetna will layoff about 8,200 people by the end of 1998, but will add new jobs to bring the net loss to 4,400.
The Hartford, Conn.-based insurance giant is shedding about 4,000 jobs as a result of merging its health business with that of US Healthcare, which it bought in July for $8.18 billion. Aetna will take a fourth-quarter charge of about $275 million, or $1.82 per share, for combining the two businesses.
Aetna is cutting an additional 400 jobs and taking a third-quarter charge of about $32 million, or 22 cents a share, to pay for reorganizing its retirement services unit.
"Through focused, cost-efficient operations and smart use of advanced technology, we will be better able to realize our growth potential," Aetna Chairman Ronald Compton said.
The work force reductions, which were expected, are part of Aetna's plan to consolidate its health-care businesses and cut expenses by $300 million within 18 months after buying US Healthcare, creating the largest U.S. provider of managed care.
Aetna shares closed down 87.5 cents at $66.875 on the New York Stock Exchange.
"The consolidation is going well," said Margo Vignola, an analyst at Merrill Lynch & Co. "Aetna will derive substantial [profit] margin improvements as US Healthcare is fully integrated," she said.
The Aetna-US Healthcare combination comes amid a wave of insurance industry mergers, worth a record $17 billion, in the first six months of this year, according to Conning & Co., a research and asset management firm that tracks insurance firms.
Aetna will let go of 7,500 people at its new Aetna US Healthcare unit and an additional 700 in its Aetna Retirement Services unit, the company said. It will also hire more people in both units, especially in sales and marketing positions.