WellPoint shares jump after $4.9B deal for Amerigroup

Back to TopCommentsE-mailPrintBookmark and Share

Investors gave a cheer Monday morning to WellPoint Inc.’s $4.9 billion deal to acquire a Virginia-based Medicaid managed care company.

Shares of the Indianapolis-based health insurer shot up more than 5 percent in pre-market trading after WellPoint said it would purchase Amerigroup Corp. They closed the day up 3.4 percent.

Investors and analysts like the fact that WellPoint is playing more aggressively in government-sponsored health plans, such as Medicaid and Medicare, which are projected to be the areas for growth the next several years.

“This acquisition aligns WellPoint much better with where the market is heading in terms of customers and markets,” said Charles Boorady, an analyst at Credit Suisse, during a conference call on Monday morning.

The deal will bring WellPoint more than 2.6 million Medicaid members in 12 states—more than doubling the 1.9 Medicaid members WellPoint currently manages. The combined companies would be the largest provider of Medicaid managed care in the nation.

Medicaid is a health insurance program for the poor funded jointly by states and the federal government. Along with the federal Medicare program for seniors, it is expected to be a key driver of growth for health insurers over the next few years.

Only 45 percent of Americans in Medicaid programs are part of managed care plans run by private entities such as WellPoint. But the company expects that proportion to rise to 60 percent in 2014 as President Obama’s 2010 health care law brings 17 million new people into the program by making adults with incomes up to 133 percent of the federal poverty limit eligible for the program.

One potential hurdle for WellPoint is the recent ruling by the U.S. Supreme Court, which gave states the option to not expand their Medicaid programs as called for by the health care law.

However, WellPoint CEO Angela Braly and Amerigroup CEO Jim Carlson both said they expect the Medicaid expansion by states to proceed pretty much as expected before the Supreme Court decision.

“We do believe the Medicaid expansion will go forward,” said Carlson during the conference call with investors and analysts. “There are billions of federal dollars that are going to flow into the states; we think the states are going to need to take it.”

Braly also emphasized during the conference call that Amerigroup will help WellPoint win more business with so-called “dual eligibles”—seniors on Medicare who also have incomes low enough to qualify for Medicaid.

The combined companies will have a presence in 13 states that have significant populations of “dual eligibles,” including such large states as California, Florida and Texas. State contracts to serve those patients could total $16 billion annually, according to WellPoint’s estimates.

“Many state governments are facing significant budget challenges as they strive to provide access to health care for the most underserved residents,” Braly said. “We expect the states to take varying approaches to address these challenges which will lead to more managed care solutions and innovative programs to serve those who are eligible for both Medicare and Medicaid.”

Braly also said Amerigroup’s knowledge of Medicaid members would jibe nicely with CareMore Group, the California-based provider of health care and health insurance to seniors in Medicare, which WellPoint acquired last year for $800 million.

WellPoint has been trying to replicate CareMore’s locations, and even expects to expand its services to New York soon.

WellPoint officials expect the latest acquisition to close in the first quarter of 2013, pending approval by Amerigroup shareholders. WellPoint’s purchase price represents $92 per share for Amerigroup investors—a 43-percent premium to the stock’s closing price on Friday. Amerigroup's stock soared 38 percent Monday morning, to $88.80 per share.

WellPoint will spend $700 million in cash, along with $4.2 billion in debt, to cover the purchase, said Chief Financial Officer Wayne DeVeydt.

Amerigroup had annual revenue last year of $6.3 billion, up 9 percent from the previous year.

When the companies combine, they expect to have more than $70 billion in annual revenue. They would jointly have more than 36 million Americans enrolled in their health plans, more than any other company.

DeVeydt said the two companies have identified $125 million in annual synergies they can achieve by 2015. Those savings, along with further revenue growth, should boost WellPoint’s annual profit $1 per share.

Last year, WellPoint earned a profit of $7 per share, excluding investment losses.



Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. Good Day I am Mr (Victoria Wright) from United state of America, i stayed in NEW YORK, and i have a broke up business, until i found this company email who help me to gain a loan for business,, and now i want to used this short medium to congratulate the below company for the fast and safe money they loan to me without any form of collateral, i loan 500,000USD from the company to save my business and lots more, i saw their mail on the internet, everyone always give testimony for what they did, so i quickly contacted them and they all did everything for me without stress and my money was sent to my account just 3 days later, i was surprise and i feel so glad, now i have a standard business control agent who help me, now i will advice those who need urgent loan to contact him at the bellow email:zenithfirm12@gmail.com

  2. NOTICE:This is to inform the general public that Vampires are real. My name is James Franklyn.,am an agent of vampire,am here to introduce our new world trend to you,a world of vampire where life get easier,we have made so many persons vampires and have turned them rich,you will be assured long life and prosperity,you shall be made to be very sensitive to mental alertness,stronger and also very fast,you will not be restricted to walking at night only even at the very middle of broad day light you will be made to walk.In case you are wildly oppressed by some unscrupulous persons we can still help you fight them.Your protection is assured immediately you join.Just contact the bellow email if you are interested we are here to attend to you anytime you want us. Contact the bellow email for more details. Email:vampirescreed@hotmail.com Sincerely: James Franklyn.

  3. Bravo! Someone else that is willing to speak the truth! Bravo!_____NBCSN is available in almost 2 MILLION more homes than just a few years ago, but Indycar STILL gets less total viewers than it did just a few years ago when NBC took over Versus. Attendance and ratings cratered with the end of season races (just when the title battle got "interesting" HAH!__________And now...new race in Basilia, where Miles celebrated the "rich history" of Indycar racing there. Rich history? What, 7 events in the 100 years of AOW? Yep, some history. Well, at least its an oval. It's not??? Are you kidding me??? Gosh darn road racin furriners.

  4. PURITY RAY LOAN OFFER........ Have you been denied by your banks,or are you in need of of an urgent loan to pay of your bills we are capable of giving loans @ cheaper rate to interested individuals, student, companies and members of the public in need of finance to settle bills, we do offer considerable loans which you can count on. For more information on our various types of loan,then you will have to contact PURITY RAY LOAN FIRM, to help you achieve your desire LOAN APPLICATION FORM TO BE FILLED BORROWERS INFORMATION * Full name:………………………. * SEX * ……………………………. * Country………………………….. * State:……………………………. * Land:…………………………….. * Occupation:…………………….. * phone number:…………………. * Telephone: ………………………….. * Age:………………………………. * Amount needed as loan:……… * Loan Duration:………………….. * Propose of Loan:……………….. * Annual revenue:………………… * Monthly Income:……………….. * Guarantee:………………………. * Payment: monthly or annually Email.....purityrayloanfirm@gmail.com Thank you and God bless Mr Purity Ray PURITY RAY LOAN FIRM we tend to serve you better

  5. Problem: most of the people responding to this article don't know about this service AT ALL! Why? Lack of awareness. This isn't IndyGo. This is CIRTA: might as well be the mattress company because they are asleep at the wheel - something like 3 directors over the last year? Playing with federal grant money is great! This "region" wants commuter rail service, has spent MILLIONS on Transportation studies yet can't even support a commuter bus line? This is largely for suburban riders to get to downtown - not for "service people to work in our hotels and restaurants" ! Get your head out of your backside!! These are professionals, students etc. that don't want to fight traffic, save some money on parking, gas, stress.... if CIRTA would put their federal money into widely promoting the sevive to Greenwood, Fishers & Carmel instead of finding directors and studies - this would be a successful service. Our family uses(d) it daily for the last several years - but the recent uncertainty & now unreliability due to cuts from Carmel has been a problem. Now, costs us an additional $350/month for gas & parking ( $4200/year) plus vehicle wear, service, environmental impact ... YES - this REGION needs this this type of service in order to keep growing and getting the people it needs to fill skilled positions in downtown Indianapolis. Think outside of your own car !!!