WellPoint has agreed to buy Amerigroup in a $4.9 billion deal. The deal is one of WellPoint’s biggest since the company was created in a 2003 merger. The company has also recently acquired 1-800 Contacts, a contact lens retailer, and CareMore, a provider of managed care for the elderly.
Under the terms of the deal, the company will pay $92 a share in cash, a significant premium over the closing price of Amerigroup the day before the deal was announced. . The deal is expected to close in the first quarter of next year. WellPoint expects the deal to add more than $1 a share to earnings by 2015
WellPoint is a giant of the health care industry and one of the country’s biggest health insurers. The company is looking to take advantage of the health care coverage expansion instituted by the Obama administration. The federal health care law, known as the Affordable Care Act, has increased pressure on the industry to better control costs. WellPoint provides insurance under the Blue Cross and Blue Shield brands in 13 states.
The purchase of Amerigroup will increase WellPoint’s presence in the government-financed markets of Medicaid and Medicare. The combined company will operate Medicaid plans in 19 states. Edward Kaplan, a senior vice president of the Segal Company, said, “Medicaid is going to be a big growth market for the big health insurers. Fifteen to 20 million lives will be up for grabs in 2014, and WellPoint wants some of those lives.”
The Supreme Court decision of several weeks ago regarding the health care law appeared to give states more latitude in deciding whether to participate in the expansion of Medicaid. Several governors have hinted that they may pursue shrinking enrollment rather than increasing it.
Richard Evans, an analyst at Sector and Sovereign Research said, “The motive of the states to reduce enrollment is considerable, both in budget and political terms.” Mr. Evans said that while federal officials may try to find a compromise with recalcitrant states, he estimates that up to 13 million people live in states where Republican lawmakers could opt out of the federal expansion and reduce the number of individuals enrolled.”