Amerigroup manages publicly-funded health programs like Medicaid. It operates in 13 U.S. states, including Texas, Florida, New York and New Jersey.
The combined company will serve Medicaid recipients in 19 states.
Indianapolis-based WellPoint said Monday that it will pay $92 for each Amerigroup share. That's a 43 per cent premium to the company's closing price Friday of $64.34.
Amerigroup currently has about 48.5 million outstanding shares, according to FactSet.
Shares of Amerigroup soared $25.86, or 40.2 per cent, to $90.20 in premarket trading, while WellPoint's stock gained $1.29, or 2.2 per cent, to $61.20.
The companies put the total value of the deal at about $4.9 billion. WellPoint says it will fund the acquisition with available cash, commercial paper and by issuing new debt.
"We believe that this combination will create an industry leader in the government sector serving Medicaid and Medicare enrollees," WellPoint Chair, President and CEO Angela Braly said in a statement.
Once the buyout is complete, WellPoint and its affiliated Medicaid plans will serve more than 4.5 million beneficiaries of state sponsored health care programs.
It will also have a presence in 13 states with significant numbers of people eligible for managed care under dual government programs, including the four largest states that have a combined $105 billion in annual dual eligible spending.
The transaction is expected to close in 2013's first quarter. It still needs certain regulatory approvals and the approval of Amerigroup stockholders.
The deal is expected to add to WellPoint's 2013 earnings per share and add more than $1 per share by 2015. The company is maintaining its 2012 earnings outlook.