(Updates share price in fifth paragraph.)
June 1 (Bloomberg) -- Intact Financial Corp., Canada’s largest property and casualty insurer, will buy Axa SA’s Canadian business for C$2.6 billion ($2.7 billion) to bolster its premiums in the country by almost 50 percent.
The cash purchase will generate an internal rate of return of 20 percent and increase annual operating earnings per share by 15 percent in the “mid-term,” Toronto-based Intact said yesterday in a statement.
The takeover, the largest by a Canadian property insurer, will increase Intact’s premiums by C$2 billion, to more than C$6.5 billion, and save at least C$100 million a year through cost cuts, according to the statement. The purchase is the first by Intact, the former Canadian insurance unit of ING Groep NV, since its 2006 acquisition of Grey Power Insurance Brokers Inc.
“This is by far the biggest splash they’ve ever made,” said Craig Fehr, an analyst at Edward Jones & Co. in St. Louis. Until yesterday, Intact had “done some small deals” and “tacked things on and built out a little bit,” he said.
Intact rose C$4.85, or 9.7 percent, to C$54.62 in 4 p.m. trading on the Toronto Stock Exchange, the biggest gain since November 2008. Axa climbed 1.5 percent to 15.06 euros.
Intact will finance the purchase with C$500 million of excess capital, issue C$800 million of stock and access C$1.3 billion of credit facilities, the company said. The Canadian unit of Paris-based Axa sells home, auto and business coverage and is the sixth-largest insurer in the country.
The transaction “provides a very strong strategic fit and it’s financially compelling,” Chief Executive Officer Charles Brindamour said yesterday in a conference call with investors.
CIBC World Markets advised Intact on the sale.
Axa, Europe’s second-largest insurer, will record an exceptional capital gain of about 900 million euros ($1.3 billion) on the sale, which will be accounted for in net income, the company said in a separate statement.
CEO Henri de Castries, 56, is scheduled to announce development plans today in Paris as investors look to him for signs that he can stem asset-management redemptions and use growth in Asia to counter a slowdown in other markets.
The company has gained 19 percent in 2011 as it won a 17- month battle to win direct control of its operations in Asian countries from India to Indonesia. By year-end, clients may stop withdrawing funds at New York-based asset-management unit AllianceBernstein LP, Axa said May 5. The firm said it had 13 billion euros in withdrawals in the first quarter, mostly at AllianceBernstein.
Axa, along with AMP Ltd., in April completed a A$13.3 billion ($14.2 billion) bid for Melbourne-based Axa Asia Pacific Holdings Ltd. to take control of businesses in a region where wealth is growing at the world’s quickest rate.
“It’s an important deal,” said Danny Jacques, a Paris- based analyst at Raymond James who recommends buying the stock. “Axa has got free hands in Asia and, when Japan is excluded, it has doubled the economic weight of its activities in Asia.”
Axa also seeks to expand in China. In October, de Castries traveled to Beijing to seal a life-insurance partnership with Industrial & Commercial Bank of China Ltd. ICBC bought a 60 percent stake in Shanghai-based AXA-Minmetals Assurance Co., while the French insurer holds 27.5 percent and China Minmetals Corp. owns 12.5 percent.
Axa’s venture with ICBC, to be called ICBC-AXA Life Insurance Co., will distribute products through ICBC’s network of more than 16,000 branches nationwide, reaching out to 35 million clients. The deal is pending approval from Chinese regulators.
--With assistance from Doug Alexander and Matt Walcoff in Toronto, Mary McNeill in New York and Fabio Benedetti-Valentini in Paris. Editors: Peter Eichenbaum, Josh Friedman
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