AXA to Buy Insurer XL Group for $15.3 Billion -- 3rd Update
March 05 2018 - 7:55AM
Dow Jones News
By Matthew Dalton and Ben Dummett
PARIS -- French financial giant AXA SA on Monday said it would
buy New York-listed insurance company XL Group Ltd. for $15.3
billion, creating one of the world's biggest property and casualty
insurers.
The deal marks another step in AXA's plan to cut its exposure to
financial markets and focus more on insurance products that aren't
sensitive to swings in interest rates and stock prices.
In light of the XL deal, Paris-based AXA said it would
accelerate existing plans to spin off its large U.S. life-insurance
business in a public offering. That division owns a majority stake
in AllianceBernstein, a money manager struggling against
competition from cheaper index funds.
Shares in AXA dropped more than 7% in morning trading in Europe.
Investors appear to be concerned that AXA is paying too much for a
company whose shares are trading near a 10-year high, said Gianluca
Ferrari, an analyst at Mediobanca. They were also expecting AXA to
use the proceeds of the IPO of its U.S. business on a mix of share
buybacks and modest, bolt-on acquisitions.
"This one is a big deal. It's not a bolt on," Mr. Ferrari said.
"We can forget about buybacks."
Buying XL bolsters AXA in a core business area as it steps away
from its U.S. operations and allows it to cut costs and boost
revenue.
"It is a fundamental reshaping of our business," Chief Executive
Thomas Buberl said.
Shareholders in XL will receive $57.60 a share, which represents
a 33% premium to the company's closing price on Friday.
XL generated revenue of $11 billion last year but reported a
$560 million loss after the catastrophic hurricanes that slammed
the U.S. and other disasters forced it to pay $2.1 billion in
damage claims.
The deal comes as reinsurers, such as XL, struggle to raise
premiums despite a string of natural disasters -- which would
typically allow the industry to raise rates -- amid competition
from so-called catastrophe bonds. Such bonds, which essentially
package insurance risk as debt, have attracted investment from
pension funds and other investors seeking higher returns.
Although global property catastrophe policy rates were up just
under 5% at the start of 2018, policy prices were still below those
of 2016 even though 2017 marked the "most expensive catastrophe
loss year on record," according to a study by JLT Re.
That's pushing companies with reinsurance businesses to seek
greater scale through deals. The purchase of XL represents the
second acquisition of a Bermuda-based insurer and reinsurer this
year after American International Group Inc. agreed in January to
buy Validus Holding Ltd for $5.56 billion.
The XL deal also highlights a broader consolidation trend in the
insurance sector. In February, reinsurance giant Swiss RE AG
confirmed a Wall Street Journal report that it was in talks to sell
a minority stake to Japan's Softbank Group Corp.
To finance the deal, AXA said it would use EUR6 billion in
proceeds from the coming IPO of its U.S. business, EUR3 billion in
cash and issue EUR3 billion in debt. AXA filed for the offering of
the U.S. business, AXA Equitable Holdings, in November with U.S.
regulators, though shares have yet to be sold to the public.
"This means we intend to progressively sell down the AXA Group's
stake in AXA Equitable Holdings over the next couple of years
subject, of course, to market conditions," Mr. Buberl said.
AXA and XL's boards have both approved the deal but the
transaction remains subject to approval from XL's shareholders and
regulators.
--Nathan Allen contributed to this article.
Write to Matthew Dalton at Matthew.Dalton@wsj.com and Ben
Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
March 05, 2018 07:40 ET (12:40 GMT)
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