WellPoint To Acquire Amerigroup for $4B

Updated on

WellPoint To Acquire Amerigroup for $4B

In a move to enter burgeoning Medicaid market, Health-benefits provider WellPoint, Inc. (NYSE:WLP) is set to acquire the managed-care company Amerigroup Corporation (NYSE:AGP) in an all cash deal $4.46 billion. Amerigroup shareholders will receive a 44% premium over Friday’s close price, or $92 a share in cash.

The deal will give further access to the second-biggest U.S. health plan provider, WellPoint access to Medicaid 4.5 million customers in 19 states including Texas, Florida, New York and New Jersey.  The deal will allow WellPoint to cut down on costs, and potentially improve the quality of its services.

WellPoint Chair, President and CEO Angela Braly said today, “We believe that this combination will create an industry leader in the government sector serving Medicaid and Medicare enrollees.”

Indianapolis-based WellPoint has been on shopping spree since last year, when it acquired CareMore, a provider of managed care for the elderly, for about $800 million and again last Month it agreed to buy 1-800 Contacts, the contact lens retailer.

Publicly-funded health programs, all shot up on the news. Amerigroup Corporation shares are up 38% at the time of this writing. WellPoint, Inc. shares are up over 3%. It is unusual for the acquirer’s stock to rally on news of a large acquisition. The immediate reaction demonstrates that investors (right now_ like the news.

From WellPoint’s view, the deal is expected to add as much as $1 per share to earnings per share by 2015. The company did not change its 2012 guidance. WellPoint is expected to fund the acquisition with available cash, commercial paper and by issuing new debt.

The move by WellPoint is based on the expectation of expected demand for Medicaid in the coming years. As Baby Boomers grow older and benefits are expanded under President Obama’s Affordable Care Act, more people will be on medicaid. The timing of the announcement is interesting; it comes shortly after the Supreme Court upheld President Obama’s Affordable Care Act as constitutional. Its possible the deal would not have gone through, had the Supreme Court struct down the Health care act. This could be the first acquisition as a result of ‘Obamacare.’ Look for more medicaid mergers & acquisitions in the future.

Credit Suisse Group AG (NYSE:CS) and Linklaters LLP advised WellPoint on the deal. Virginia-based Amerigroup’s advisers. were Goldman Sachs Group, Inc. (NYSE:GS), Barclays Plc (LON:BARC); with Skadden, Arps, Slate, Meagher & Flom LLP providing legal guidance.

The transaction is expected to close in 2013’s first quarter. It still needs certain regulatory approvals and the approval of Amerigroup stockholders.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!