Health Insurer WellPoint Inc. (NYSE: WLP) agreed to buy the managed-care company Amerigroup Corporation (NYSE: AGP) in a roughly $4.9 billion cash deal to expand its presence in Medicaid space.
Amerigroup shareholders will receive $92 per share, the companies said in a statement Monday. That's a 43 percent premium to Friday's closing price of $64.34.
Shares of Amerigroup Corporation (NYSE: AGP) soared 40 percent in premarket trading to $90.25 apiece. The stock is up 8.9 percent so far this year. Shares of WellPoint Inc. (NYSE: WLP) rose 5.16 percent to $63.00.
WellPoint said that after the deal closes, which is expected to close in the first quarter of 2013, it will serve more than 4.5 million beneficiaries of state-sponsored health programs and its Medicaid footprint will include 19 states and a presence in 13 states with significant dual eligibility opportunities.
The move comes as the insurance industry, and Medicaid, face significant changes under the Obama administration's health care reform plan. The U.S. Supreme Court upheld the Affordable Care Act to expand Medicaid by 17 million people in a ruling two weeks ago while also weakening the administration's ability to force states to comply.
Starting Jan. 1, 2014, Medicaid, the low-income health insurance program, could be expanded to cover a further 16 million to 20 million Americans with a higher annual income than the current cutoff, the Congressional Budget Office estimates. Currently, 62 million Americans are covered by Medicaid.
We believe that this combination will create an industry leader in the government sector serving Medicaid and Medicare enrolees, Angela Braly, WellPoint's chief executive officer, said in the statement.
Additional earnings per share is expected to exceed $1 by 2015. Analysts polled by Reuters had expected Wellpoint to earn $9.63 per share in 2015.