NEW YORK — WellPoint, the second-biggest U.S. health insurer, will buy Amerigroup Corp. for $4.9 billion, a move that may spur a wave of acquisitions as companies compete to manage an expanding Medicaid market.
Amerigroup stockholders will receive $92 a share in cash, 43 percent more than the July 6 closing price, according to Mondays statement by the two companies. The agreement makes Indianapolis-based WellPoint the biggest private provider of Medicaid cover for the poor with 4.5 million members, eclipsing the 3.5 million patients served by UnitedHealth Group.
President Barack Obamas U.S. health care law seeks to add as many as 17 million patients under Medicaid, while individual states have been increasingly turning to insurers to help them manage existing programs at less cost. WellPoint Chief Executive Officer Angela Braly said both aspects played a role in the decision to purchase Amerigroup.
The deal makes sense as it diversifies WellPoints revenue away from its commercial business while expanding the companys participation in the substantial Medicaid growth opportunity, said Jason Gurda, a Leerink Swann & Co. analyst in New York, in a note to clients.
WellPoint currently gets about a quarter of its operating income from plans sold to small businesses and individuals, markets where profit margins are likely to suffer under new regulations from Obamas health care law, Gurda said. The acquisition move may also serve to boost acquisition interest in other insurers specializing in Medicaid, a program run jointly by the state and federal governments, said Thomas Carroll, an analyst at Stifel Nicolaus & Co. in Baltimore.