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AXA plunges after agreeing to buy XL group for US$15.3b
[PARIS] AXA agreed to buy XL Group Ltd for US$15.3 billion in cash, the biggest-ever European acquisition of a US insurer, sending its shares plunging.
The French firm fell the most since June 2016, with analyst Daniel Bischof of Baader Helvea AG saying the deal has a sound logic but the price is at the upper end of expectations. AXA is paying US$57.60 a share, according to a statement on Monday, a premium of about 33 per cent compared with the stock's closing price of US$43.30 on Friday.
Buying XL, which sells insurance to other insurers, would bolster Axa's casualty-coverage business in the US just as premiums rise after last year's natural disasters. Bloomberg reported Saturday that AXA was in advanced talks on the deal, the firm's biggest, citing people familiar with the matter. XL had also attracted interest from competitors including Germany's Allianz SE.
AXA fell as much as 10 per cent to 22.55 euros, the lowest in a year. It was trading at 23.80 euros at 8.04 am in Paris.
Less than two years after taking over Axa's top job, Chief Executive Officer Thomas Buberl is ramping up dealmaking, refocusing on businesses such as P&C commercial lines while shedding some assets and focusing on fewer countries. Financing will come from 3.5 billion euros (S$5.68 billion) of cash at hand, an expected 6 billion euros from the planned US IPO and related transactions, and 3 billion euros of subordinated debt. The initial public offering of AXA's US life unit is expected in the second quarter.
AXA "must believe the timing is right in the cycle to expand in the US reinsurance and P&C markets," Karim Bertoni, who helps manage US$12 billion at Bellevue Asset Management in Switzerland, said before the announcement. Given capital market conditions, "there's maybe a window of opportunity for both an IPO and an acquisition to reinforce areas where higher returns can be expected." Companies like XL Group have become takeover targets after the heavy toll of natural disasters last year pushed prices for coverage higher. The Bermuda-based insurer also attracted interest from bigger rivals including Germany's Allianz SE, people familiar with the matter said last month. As of Friday's close, XL shares had gained 23 per cent this year in New York.
Economic losses from weather-related disasters including hurricanes Harvey, Irma and Maria and Californian wildfires reached US$306 billion in 2017, according to the U.S. government. Costs from such disasters helped drive down XL's shares in both 2016 and 2017. To resist pressure from new rivals in the catastrophe market, Chief Executive Officer Mike McGavick sought expansion in specialty coverage and reinsurance through the US$3.9 billion purchase of Catlin Group Ltd in 2015.
Last month, Mr McGavick said he was optimistic about XL's progress on the back of a solid capital position and growth in premiums. AXA's purchase of XL Group marks the biggest insurance deal since 2015, according to data compiled by Bloomberg. The biggest insurance takeover this year had been American International Group Inc's January agreement to buy Validus Holdings Ltd for more than US$5 billion in cash.
AXA is making a return to large dealmaking more than a decade after its last major transaction, the purchase of Switzerland's Winterthur. Formerly a regional insurer in Normandy, Axa built itself into Europe's second-largest insurer through major takeovers in the 1990s. Recent deals have been smaller-scale, acquiring assets or setting up partnerships in emerging markets including China, Nigeria and Colombia.