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The stock and cash deal comes as current No. 1 health plan, UnitedHealth Group Inc., announced a bid to acquire Mid Atlantic Medical Services Inc. (NYSE:MME - News) for roughly $3 billion. WellPoint last month closed a deal to buy smaller rival Cobalt.

HMOs have posted record profits in recent quarters, helped by cutting marginally profitable members. But with the massive layoffs in corporate America, experts say the pool of insured customers is diminishing, forcing consolidation.

"I'm sure almost every single company has talked to each other in a preliminary way about some kind of merger," said James Morris, analyst at Utendahl Capital Partners. "Industry consolidation has been going on and I think we'll see more in the future."

The deal was originally valued at $16.4 billion, but its value slipped to about $14.1 billion after Anthem's shares sagged about 9 percent on Monday, after the deal was announced.

With only one publicly traded Blue Cross plan left, WellChoice Inc. (NYSE:WC - News), the next question will be how soon a merged Anthem-WellPoint will make an offer for New York-based WellChoice, Morris said.

Under the terms of the Anthem-WellPoint deal, WellPoint shareholders will receive $23.80 in cash and one share of Anthem common stock for each WellPoint share.

The combined offer values WellPoint at $101.06 per share. WellPoint shares rose about 8 percent, to $90.60, signaling investors may harbor doubts about the deal's prospects or timing

The Department of Justice and various state boards, in addition to company shareholders and the Blue Cross Blue Shield Association, must still approve the deal.

The deal should be modestly dilutive to 2004 earnings per share and accretive after that, the companies said. The companies expect the deal to add $50 million pretax in 2004 and $175 million in 2005, and $250 million on a yearly basis by 2006.

BLUE BRAND

Although Anthem is the smaller company, it is acquiring WellPoint under the structure of the deal. Anthem has about 12 million members, while WellPoint insures about 14 million.

UnitedHealth Group (NYSE:UNH - News) is currently the largest health insurer, with more than 18 million commercial and government customers.

The Anthem-WellPoint deal combines two major providers of Blue Cross and Blue Shield plans, some of the most popular health plans across the country. The Blue Cross and Blue Shield plans are organized on a state-by-state basis, and Anthem has been gobbling up several states' Blue Cross and Blue Shield plans over the past few years.

Anthem's acquisition spree hit a snag in August, when the Kansas Supreme Court denied Anthem's bid to acquire the state's Blue Cross and Blue Shield insurance plans.

The WellPoint acquisition, if cleared by regulators, would bring together Anthem's nine Blue Cross-Blue Shield plans and WellPoint's four, including California.

Larry Glasscock, currently chairman, president and chief executive officer of Anthem, will serve as president and CEO of the combined company, while Leonard Schaeffer, currently chairman and chief executive officer of WellPoint, will be the chairman of the combined company.

Both companies also reported higher third-quarter earnings on Monday.

The newly merged company will be called WellPoint Inc. be headquartered in Indianapolis.