In the growing Medicaid marketplace, health insurer WellPoint (WLP) announced plans to buy AmeriGroup (AGP) for nearly $4.9 billion ($92 per outstanding share) in order to double its Medicaid business across 19 states. The deal is in response to the federal government’s expansion of eligibility in Medicaid, as well as the U.S. Supreme Court upholding the health-insurance reform law, which would further expand Medicaid eligibility to 16 million Americans who currently would not be eligible.
Upon the announcement of the news Monday, WellPoint stock rose 3 percent and AmeriGroup rose 38 percent (the bid price was 43 percent above Friday’s close). In the sector, other players saw profits as this deal raised speculation of other acquisitions in the near future.
Christian Leone’s Luxor Capital just added about $47 million in AmeriGroup stock to its portfolio in the first quarter of 2012, so the large jump in price certainly warrants the investment with immediate rewards. Billionaire Jim Simons, Ken Griffin, and Andreas Halvorsen were also among the hedge fund managers who profited handsomely from the deal.
Angela Braly, CEO of WellPoint, said in a press release that “this combination will create an industry leader in the government sector serving Medicaid and Medicare enrollees. This is an opportunity to capitalize on the strengths of both companies to better serve our members … as we prepare for health-insurance exchanges,” referencing the exchanges in the federal Affordable Care Act.
Though the timing of the deal was convenient, Braly insisted that the Affordable Care Act wasn’t as much the catalyst of the deal as much as the government’s trend of moving government-backed health-insurance programs into the private sector to hold down costs. She estimated Medicaid spending in th private sector to increase by $100 billion by the time the Affordable Care Act is fully implemented in 2014.
Those close to the deal said it should not raise many red flags to regulators, as AmericGroup’s largest markets are Texas, Florida, Georgia and New York – where WellPoint has not had much of a footprint. This lack of overlap, the sources say, should allow this deal to go through and be finalized by the first quarter of 2013.