WellPoint to Buy Amerigroup to Expand Medicaid Business

Arjun Dave
09 Jul, 2012
New York City

WellPoint, Inc agreed to pay $4.9 billion in cash for Amerigroup to expand its health insurance plans to cover Medicaid business. The offer values the company at 43% premium as the nation prepares to implement healthcare reform.

[R]11:20 AM New York – WellPoint, Inc agreed to pay $4.9 billion in cash for Amerigroup to expand its health insurance plans to cover Medicaid business. The offer is at 43% premium to closing price on Friday as the 2014 deadline looms for healthcare reform.[/R]

WellPoint, Inc., the health insurer agreed to acquire Amerigroup Corp. for $92 a share in a deal valued at about $4.9 billion.

Amerigroup ((AGP)) shareholders will receive $92 cash, 43% premium from its close on July 6.

The multi-billion deal between the two insurance companies follows the latest ruling from the U.S. Supreme Court that affirmed the law and its implementation.

As the nation prepares to implement the law, at least 10 states with Republican governors are opposing the implementation strictly on the political grounds.

The WellPoint deal comes after the U.S. Supreme Court affirmed the Affordable Care Act and the law is expected to take hold in 2014.

After the high court ruling, the Medicaid program is set to expand to cover 16 million uninsured people as a part of the President Barack Obama’s plan to expand health care insurance to 30 million uninsured.

The federal-state joint program is expected to be funded for the first three years by the federal government and thereafter states will receive 90% of funding to expand Medicaid plans operated as health exchanges run by private insurance companies.

The acquisition is expected to close in the first quarter of 2013 and is estimated to be accretive to WellPoint’s earnings per share in 2013, including one-time transaction and integration costs.

After the merger, Indianapolis based WellPoint, with its affiliated Medicaid plans, will serve more than 4.5 million beneficiaries of state sponsored health care programs.

Shares of Medicaid plans operators rose after the deal announcement. Molina Healthcare Inc ((MOH)), WellCare Health Plans Inc ((WCG)) and Cetence Corp ((CNC)) jumped more than 10% in the early trading.

WellPoint, Inc. ((WLP)) increased 2.6% or $1.58 to $61.49 and Amerigroup jumped $24.39 or 27% to $88.73.

In the latest year ending in December 2011, Amerigroup generated revenues of $6.3 billion with net income of $195 million.

WellPoint plans to pay for the acquisition with the help of cash on balance sheet and issuance of commercial paper and new debt.

WellPoint also last month agreed to acquire 1-800 Contacts, the online retailer of contact lenses and purchased last year, CareMore, the operator of managed care for elderly, for $800 million.

CreditSuisse Group AG and Linklaters LLP acted as financial advisers to WellPoint and Goldman Sachs & Co, Barclays Plc advised Amerigroup.