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(Reuters)—Health insurer WellPoint Inc. will buy rival Amerigroup Corp. for $4.46 billion in a major bet on the expansion of the U.S. government's Medicaid health plans for the poor.
The companies announced the deal on Monday, just a week and a half after the U.S. Supreme Court upheld the 2010 health care reform law, which aims to extend coverage to more than 30 million uninsured Americans.
Combined, WellPoint and Amerigroup will serve more than 4.5 million beneficiaries of state-sponsored health care plans, including Medicaid recipients in 19 states, the companies said.
"We're confident that now is absolutely the right time for this compelling opportunity. First and foremost, there are significant growth opportunities ahead in the Medicaid marketplace resulting from economics, demographics, budgetary issues, as well as health care reform," WellPoint Chief Executive Angela Braly told a conference call.
WellPoint is offering $92 per share in cash for Amerigroup, a premium of 43% to its closing share price on Friday.
WellPoint shares rose 4.5% to $62.63 in early trading. Other insurers specializing in administering Medicaid plans also gained, with Wellcare Health Plans up more than 12% and Centene Corp. up more than 15%.
Amerigroup climbed nearly 38% to $88.72.
"We believe that this combination will create an industry leader in the government sector serving Medicaid and Medicare enrollees," Ms. Braly said. "This is an opportunity to capitalize on the strengths of both companies to better serve our members...as the health insurance industry changes and as we prepare for health insurance exchanges."
The Patient Protection and Affordable Care Act aims to provide coverage for 16 million more Americans through privately run (not true—the exchanges are not private—we could say health insurance exchanges) health insurance exchanges in each state, and will expand Medicaid eligibility for an additional 16 million people.
The Supreme Court ruling allowed states to choose whether to participate in the Medicaid expansion. Several Republican governors who opposed the law—including those in Florida, Louisiana and Wisconsin—have said they will not take steps to implement the expansion. The law takes full effect in 2014.
Ms. Braly said WellPoint would have done the deal no matter what the decision was from the Supreme Court.
WellPoint expects to close the Amerigroup deal in the first quarter of 2013, financed with existing cash, commercial paper and new debt. The acquisition is expected to add to WellPoint's earnings per share in 2013, the company said. WellPoint left its 2012 earnings-per-share forecast unchanged.
The boost to earnings per share is expected to exceed $1 by 2015, WellPoint said. Analysts had expected the company to earn $9.63 per share in 2015, according to Thomson Reuters I/B/E/S.
WellPoint was advised by Credit Suisse and Amerigroup by Goldman Sachs and Barclays.
(Reuters)—Health insurers WellPoint Inc. and Aetna Inc. posted quarterly profits above Wall Street targets and raised their full-year forecasts Wednesday, but WellPoint warned costs for its Medicare plans for seniors were higher than it expected this year.