WellPoint Inc. on Monday, July 9 said it has a deal in place to acquire managed-care firm Amerigroup Inc. in a $4.9 billion cash deal designed to expand the buyer's Medicaid business.

A source who worked on the deal said it ranks as the largest-ever cash deal in the health insurance sector and features the largest premium ever paid for a managed care provider. Terms of the transaction call for Indianapolis-based WellPoint to pay $92 in cash for each share of Amerigroup, a premium of 43% over the target's $64.34 Friday close. WellPoint said that the deal, which is expected to close early next year, should contribute to earnings per share in 2013.

Amerigroup, of Virginia Beach, Va., is a manager of state Medicaid and other publicly-funded programs. The company serves about 2.7 million members in 13 states including high growth markets Florida, Texas and New York.

WellPoint, which operates as a licensee of the Blue Cross and Blue Shield Association in 14 states and boasts nearly 34 million people in its health plans, said the purchase would give it the scale needed to provide better and lower cost healthcare services. Company chair and CEO Angela F. Braly in a statement said the deal "will create an industry leader in the government sector serving Medicaid and Medicare enrollees," pledging to lower costs for government payers.

"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," Braly said.

Post-deal WellPoint with its affiliates will serve more than 4.5 million beneficiaries of state-sponsored health care programs in 19 states. The deal will also provide WellPoint more access to Medicaid patients, an area expected to benefit from the Affordable Care Act, despite the threat of some Governors to refuse expanded coverage offered by the new law. WellPoint aims to shelter its mainline insurance business as the company, like all insurers, will be under scrutiny to accept patients with pre-existing conditions and forbidden from imposing lifetime benefit limits.

This is WellPoint's largest deal since its $6.5 billion purchase of WellChoice Inc. in 2005. In the years since the company has bought smaller companies, most recently purchasing 1-800 Contacts Inc. for $900 million. In 2009 it sold NextRx LLC to Express Scripts Inc. for $4.68 billion.

WellPoint was advised by Stuart Smith and Michael Muntner at Credit Suisse and Linklaters LLP's Daniel Dufner, Michael Deyong, Demetra Karamanos, Lillian Kim, Clara Pang and Daniel Law.

Goldman Sachs & Co.'s Brian Kane, Jason Silvers and Paresh Lala and a Barclays team including Mark Hanson, Punit Mehta and Eric Rabinowitz are providing financial advice to Amerigroup, with Jeremy London, Paul Schnell, Todd Freed, Clifford Aronson, Ian John, Neil Leff and John Bentivoglio of Skadden, Arps, Slate, Meagher & Flom LLP serving as legal counsel.