WellPoint's Deal for Amerigroup Is Landmark 'Obamacare' Merger
Updated to include Moody's rating downgrade, Fitch and S&P actions.
NEW YORK (TheStreet) -- Obamacare has its first major merger, after health care giant WellPoint(WLP) said on Monday that it will buy Amerigroup(AGP) , a managed health care company with 4.5 million customers of state sponsored health care programs, for $4.9 billion, or $92 a share in cash.
The deal, which comes at a 43% premium to Amerigroup's Friday closing share price, is the first major health care sector merger since President Obama's Affordable Health Care Act was narrowly upheld by the Supreme Court in late June and adds to a trend of consolidation within the industry.
For WellPoint, which ended 2011 with 65-plus million health care customers including those under Blue Cross and Blue Shield private plans that it is a licensee of, Amerigroup's mostly Medicaid customers will help the company push into state sponsored health care plans that are most impacted by the health care act and court ruling.
"We believe that this combination will create an industry leader in the government sector serving Medicaid and Medicare enrollees," said WellPoint CEO Angela Braly in a statement. Braly added that the merger, which focuses on Medicaid recipients like the poor and the elderly, is an opportunity to "position our companies for future growth as the health insurance industry changes and as we prepare for health insurance exchanges."
With Amerigroup, WellPoint's Medicaid footprint will be in 19 states, gaining 4.5 million accounts and some dual eligible managed care accounts. The company projects that it will also gain access to $105 billion in annual dual eligible spending opportunities in the four largest states where it's gaining such a presence.
Amerigroup shares rose nearly 40% to over $89.84 a share in early Monday trading on news of the deal, while WellPoint shares climbed nearly 3% to $61.64 a share. Prior to the deal, both companies' shares had declined on the Supreme Court's ruling in June 28.
News of the deal caused some Medicaid-focused healthcare providers such as Centene(CNC) , Molina Healthcare(MOH) and WellCare Health Partners(WCG) to surge over 10% in early trading, as some expect continued consolidation.