- WellPoint will pay $92 per share to acquire Amerigroup, a more than 40% premium from Amerigroup's Friday closing price.
- Total deal valued at $4.9 billion.
- The deal will be financed by cash and debt.
- Deal values Amerigroup at more than 28 times earnings.
More often than not, when a company announces a big acquisiton the acquiring company's stock falls. The fact that WLP is trading higher, not lower, following the deal is a bullish indicator for WLP. For short-term traders, this is probably the most important aspect of the deal as the deal will not have much of an impact on WLP over the short term. The move is even more impressive when considering WLP is leading the S&P 500.
WLP is currently trading at 8.5 times trailing earnings, 7.3 times forward earnings, and at a PEG of 0.78. These numbers indicate that WLP is certainly not overvalued based on traditional metrics.
As discussed in my article about the move higher in Wellcare Health (WCG), I believe the 2012 election will have a major impact on the sector. However, I believe short-term traders could go long WLP for a move quick higher based on Monday's performance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.