Axa agrees to buy XL Group for $15.3bn

Bloomberg

Axa SA agreed to buy XL Group Ltd. for $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 $57.60 a share, according to a statement, a premium of about 33 percent.
Buying XL, which sells insurance to other insurers, would bolster Axa’s casualty-coverage business in the US just as premiums rise after 2017’s natural disasters. Bloomberg reported 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.
Less than two years after taking over Axa’s top job, CEO Thomas Buberl is ramping up dealmaking, refocussing on businesses such as P&C commercial lines while shedding some assets and focussing on fewer countries. 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 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 $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 percent this year in New York.
Economic losses from weather-related disasters including hurricanes Harvey, Irma and Maria and Californian wildfires reached $306 billion in 2017, according to the US 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 $3.9 billion purchase of Catlin Group Ltd. in 2015.