Insurer UnitedHealth Group Inc said on Monday it would acquire the northeast U.S. operations of Health Net Inc for about roughly $510 million to expand its presence in that region.

The deal, which covers 578,000 members in Connecticut, New York and New Jersey, is expected to modestly boost earnings for both companies. The operations are expected to have 2009 revenues of about $2.7 billion.

Health Net, meanwhile, said it would keep its Arizona operations and focus its resources on its health plans in the Western United States.

Los Angeles-based Health Net, which provides health benefits to about 6.6 million people, had been weighing a sale of its Arizona business, but decided to maintain the unit.

We determined that there are greater synergistic opportunities among our three Western health plans than we originally thought, said Jay Gellert, Health Net's President and Chief Executive Officer.

Also, Arizona's performance is improving significantly. The commercial market has become much more rational, our provider network is stable, and Medicare is achieving anticipated improvements.

Under the terms of the deal, UnitedHealth, the largest U.S. health insurer by market value, will acquire Health Net's Northeast insurance and HMO businesses in Connecticut, New York and New Jersey, which are valued at roughly $450 million.

UnitedHealth will pay an initial tranche of $290 million, with the remaining money to be paid as customers transition to its company.

Minneapolis-based UnitedHealth will pay Health Net $60 million at the close of the deal for the Medicare and Medicaid businesses and the renewal rights for the commercial membership.

UnitedHealth said it would pay Health Net additional consideration on a per member basis as Health Net's Northeast commercial customers transfer. The amount could be as much as $120 million if all customers moved to UnitedHealth.

Health Net currently expects to record several items related to the deal, including tax benefits, severance costs, freed-up capital, other items, that will have a negative impact of about $20 million.

Health Net said it is evaluating other potential noncash charges related to the transaction, including potential goodwill impairment.

(Reporting by Jessica Hall; editing by Andre Grenon)

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