WellPoint Inc.
(
WLP
) has announced that it has entered into a definitive deal with
Amerigroup Corporation
(
AGP
), under which it will acquire the latter for roughly $4.9 billion.
WellPoint will fund the purchase with cash, commercial papers and
issuance of new debts.The company's shares rose 3.4% to close at
$61.95 on July 9.
WellPoint also declared that it would pay $92.00 per share to
buy all the outstanding shares of Amerigroup. This reflects a 43%
premium on Amerigroup's closing price of $64.34 on July 6. The
deal, which is expected to consummate in the first quarter of 2013,
is subject to the approval of various regulatory approvals,
antitrust clearance and other closing conditions. Also, the
shareholders of Amerigroup should put forth their assent for the
deal.
Credit Suisse, a division of the
Credit Suisse Group
(
CS
), and Linklaters LLP are acting as the financial and legal
advisors to WellPoint, respectively. Goldman Sachs & Co., an
operating unit of
The Goldman Sachs Group, Inc.
(
GS
), and Barclays, a unit of
Barclays PLC
(
BCS
), is mentoring the financial proceedings on behalf of
Amerigroup.
WellPoint's total number of patients, which the combined company
will serve, will increase significantly to include 19 states.
The news comes on the heels of WellPoint's acquisition of 1-800
CONTACTS Inc. that increased its customer base by 3.3
million. WellPoint has lately been on an acquisition spree, and its
improving cash position also supports these initiatives.
However, following the company's announcement of debt issue for
financing the acquisition, Moody's Investor Services reduced its
senior debt rating to Baa2 from Baa1 with a stable outlook,
according to Reuters. WellPoint has an interest coverage ratio of
11.45%, which is below the industry average of 23.42%. We believe
that the issuance of additional debt will further increase the
company's interest expense burden. Simultaneously, the company's
ability to meet its debt obligation will become questionable.
WellPoint currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. We maintain a long-term Neutral
rating on the shares of the company.
AMERIGROUP CORP (AGP): Free Stock Analysis
Report
BARCLAY PLC-ADR (BCS): Free Stock Analysis
Report
CREDIT SUISSE (CS): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research