The acquisition, Aetna's third purchase of a managed care company since 1996, would boost the number of people covered in its plans to 22.4 million, or about one in 12 Americans.

The transaction also makes Aetna the country's largest managed care company with 18.4 million members.

Hartford, Connecticut-based Aetna first shook up the nation's health insurance industry in 1996 with its nearly $9 billion acquisition of US Healthcare. Aetna earlier this year bought the NYLCare Health Plans business of New York Life Insurance Co. for $1 billion.

In a conference call with reporters, Aetna chairman Richard Huber described the latest transaction as a landmark, making it the leading health care benefits provider in several states.

"This is an industry redefining transaction. It does change the landscape of the whole industry," Huber said.

For Newark, New Jersey-based Prudential, the country's largest life insurer, the deal marks another step in its effort to prepare for its conversion from a mutual insurer to a publicly traded stock company in the next year or two. Under the deal, Prudential will receive $500 million in cash and $500 million in a three-year note.

Aetna said it expects to achieve cost savings of $130 million to $150 million a year in two to three years.

Aetna said it may cut 1,000 to 2,000 jobs from Prudential HealthCare's work force of 16,000 over the next year or two.

But the company plans to retain all four of Prudential HealthCare's service centers.

While the deal is attractive to Aetna it also carries risks, industry analysts said.

Aetna said it was acquiring Prudential for about $200 per member compared with $600 per member for NYLCare and $1,000 per member for US Healthcare.

"It's a good deal for Aetna," said Ernst & Young analyst Beth Morrow.

"They're building scale, which they really need."

But US Healthcare was a profitable, healthy business while the Prudential operation is known as a money-loser.

And although Prudential is being turned around, Aetna still faces big challenges integrating the business with its own, the analysts said.

"There's clearly benefits to any kind of transaction to build scale and membership," Moody's senior vice president Patrick Finnegan said. But "the integration risk is clearly high.

"The US Healthcare deal didn't come off as well as they would have liked and NYLCare is still in the infancy stages (of integration)," he said.

But Aetna's Huber said the company has become more adept at such integration since its US Healthcare acquisition.

Aetna spokeswoman Joyce Oberdorf said Aetna had looked at the Prudential healthcare business several times in the past. But Prudential had taken steps to improve the business and the price was more attractive now than in the past, she said.

Huber said he believes Aetna is now where it wants to be.

"We're really where we've been dreaming of getting for several years," Huber said on the conference call. "We now have critical mass in most important markets."