Health insurance provider Wellpoint Inc. (NYSE: WLP) announced this morning that it has reached a definitive agreement to acquire managed care provider Amerigroup Corp. (NYSE: AGP) for a total of $4.9 billion. Amerigroup shareholders will receive $92/share in the all-cash deal, a premium of 43% to the stock’s closing price last Friday. The acquisition is expected to close in the first quarter of 2013.

Wellpoint’s CEO gave this reason for the deal:

We believe 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 and position our companies for future growth as the health insurance industry changes and as we prepare for health insurance exchanges.

Of course the two companies have been talking about this for more than the two weeks since the US Supreme Court validated the Affordable Care Act, aka Obamacare, but it’s pretty clear that Wellpoint is willing to bet big money on the fact that states will not turn down the federal funds on offer to expand Medicaid. The relative silence of the insurers during the debate over Obamacare was not shyness on the part of insurers — the new law is good for them, at least over the next few years.

Wellpoint noted that the combined company’s Medicaid and managed care business would pop:

WellPoint, with its affiliated Medicaid plans, will serve more than four-and-a-half million beneficiaries of state sponsored health care programs. The combined company’s Medicaid footprint will include 19 states. The company will also have a presence in 13 states with significant near-term dual eligible managed care opportunities, including a presence in the four largest states that have a combined $105 billion in annual dual eligible spending.

Wellpoint also said that the acquisition would be accretive to earnings in 2013, even including transaction and integration costs. By 2015 the company expects the deal to add $1/share to earnings. Wellpoint will also leave its 2012 EPS guidance intact.

Shares of Amerigroup are up more than 39% in pre-market trading, at $89.70. The stock’s 52-week range before today’s announcement was $37.57-$75.18. Shares of Wellpoint are up a more modest 2.2%, at $61.25 in a 52-week range of $56.61-$77.61.

Paul Ausick

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