WellPoint, the nation's second-largest insurer, said Monday that it will pay $92 in cash for each share of Virginia Beach, Va.-based Amerigroup, which runs Medicaid coverage in 13 states, including Texas, Florida and New York. That price represents a 43 percent premium to Amerigroup's closing price Friday of $64.34.
Amerigroup shares soared close to the acquisition price Monday morning. They climbed 38 percent, or $24.41, to $88.75. WellPoint's stock rose 3.5 percent, or $2.10, to $62.01 per share.
Medicaid is the state and federally funded program that provides health coverage for the needy and disabled. WellPoint, which is based in Indianapolis, and other insurers see growth opportunities in managing care for patients who qualify for both Medicaid and Medicare, the federally funded program for people over age 65 and the disabled.
These so-called "dual eligible" patients generate a lot of medical claims, and states have been moving them to managed care programs to improve their coverage and cut down on wasteful spending and duplicate tests.
"We believe that this combination will create an industry leader in the government sector serving Medicaid and Medicare enrollees," WellPoint Chair, President and CEO Angela Braly said in a statement.
Once the buyout is complete, WellPoint and its affiliated Medicaid plans will serve more than 4.5 million beneficiaries of state sponsored health care programs. WellPoint currently has nearly 1.9 million people enrolled in Medicaid plans.
The combined company will have a presence in 13 states with significant numbers of people eligible for managed care under the dual government programs. This includes the four largest states that have a combined $105 billion in annual dual eligible spending.
Medicaid enrollment also is expected to expand after 2014 due to the federal health care overhaul, which aims to provide coverage to millions of uninsured people. One of the main ways it will accomplish this goal is by making more people eligible for Medicaid.
However, the extent of this enrollment growth is uncertain because the Supreme Court ruled last month that states can opt out of the planned expansion.
The companies put the total value of the deal at about $4.9 billion. WellPoint says it will fund the acquisition with available cash, commercial paper and by issuing new debt.
The transaction is expected to close in 2013's first quarter. It still needs certain regulatory approvals and the approval of Amerigroup stockholders.
The deal is expected to add to WellPoint's 2013 earnings per share and add more than $1 per share by 2015. The company is maintaining its 2012 earnings outlook.
WellPoint runs Blue Cross-Blue Shield plans in several states and has about 33.7 million people enrolled in its plans.