Paris:
AXA, Europe’s second-biggest insurer on Monday, has agreed to buy property and casualty insurance company XL Group for around $15.3 billion((12.4 billion euros), in a deal which AXA said would create a world leader in its particular sector.
"The combination of AXA's and XL Group's existing position will propel the Group to the number one global position in P&C commercial lines with combined 2016 revenues of 30 billion euros and total P&C revenues of 48 billion euros," said AXA in a release.
The cash transaction, which has been agreed by the boards of both companies, is expected to be completed in the second half of this year, AXA said in a statement.
The deal will have its impacts on India as both AXA and XL Group have Indian operations in the country.
AXA has two joint ventures with Sunil Bharti Mittal owned Bharti Group for both life and nonlife-Bharti AXA Life and Bharti AXA General Insurance- business and also has a branch for undertaking reinsurance operations in the country. XL Catlin-XL had earlier taken over Catlin- has a branch for reinsurance operations in the country.
Sources in Paris said, both the branches will be merged and AXA will have one license to run its reinsurance branch in the country.
AXA had got its reinsurance branch license in Aug 2017 and has managed to develop a substantial business portfolio while XL Catlin had received its reinsurance branch license in early part of 2017.
One of AXA’s many motives in buying XL Group is the reinsurance portfolio it comes with, which will offer further diversification, and also the access to the capital markets that now comes hand in hand with this.
That was according to AXA CEO Thomas Buberl speaking during a March 5 presentation on the deal. He said AXA wants to retain the reinsurance business not least because of the access to financial markets it enables.
The purchase price of $57.60 represents a premium of 33 percent over XL's closing share price on Friday.
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.
“This transaction is a unique strategic opportunity for AXA to shift its business profile from predominantly life and savings business to predominantly property and casualty business, and will enable the Group to become the number 1 global property and casualty commercial lines insurer based on gross written premiums,” said Buberl.
“The transaction offers significant long-term value creation for our stakeholders with increased risk diversification, higher cash remittance potential and reinforced growth prospects. The future AXA will see its profile significantly rebalanced towards insurance risks and away from financial risks,” he added.
Financing will come from 3.5 billion euros of cash at hand, an expected 6 billion euros from the planned U.S. IPO and related transactions, and 3 billion euros of subordinated debt. The initial public offering of Axa’s U.S. life unit is expected in the second quarter.
AXA, which ranks as Europe’s second-biggest insurer in terms of market capitalization behind Germany’s Allianz, said it would finance the XL deal via debt, cash and the proceeds of the forthcoming flotation of its U.S. unit.
It added it expected the XL takeover to be cash accretive, and to result in cost synergies of around $400 million per year, based on pre-tax earnings.
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.