Allianz Plans Buy Out of AGF Minority Shares; German Life Minorities

January 18, 2007

Germany’s Allianz SE, Europe’s largest insurer in terms of gross premiums written, is set to get even bigger. The Munich-based Company announced plans to acquire the remaining 42.4 percent of the shares in French insurer AGF that it does not already own. It also plans to acquire the remaining 9 percent of minority shares in German life insurer Allianz Lebensversicherungs (Allianz Leben).

Allianz plans a public tender offer to acquire all outstanding AGF shares through an €87.5 ($112.875) cash payment for one AGF share (cum dividend 2006) and an additional 0.25 Allianz shares (cum dividend 2006). Allianz said that, “based on the closing price of its shares as of January 16, 2007 this constitutes a value of €126.43 ($133.09) per AGF share,” representing a premium of 19.1 percent compared to the six month volume weighted average AGF share price. Altogether the transaction is valued at around €10.5 billion ($13.55 billion).

The move does not come as a complete surprise in light of Allianz’s consolidation and restructuring. In September 2005 it announced that it would convert its corporate structure into a Societas Europaea (Allianz SE), one of the the first major European companies to so. The group carried out the changeover in conjunction with a separate plan to merge with its Italian subsidiary Riunione Adriatica di Sicurtà (RAS) S.p.A (See IJ web site Sept. 13, 2005). The RAS acquisition, which cost around $7 billion, and the corporate changeover, were completed in October 2006.

Many analysts commented that, once the Italian transfer was completed, Allianz would move to consolidate its French holdings, notably AGF, which is among France’s largest insurers. Their suppositions appear to have been well founded.

Allianz said AGF’s Board of Directors had welcomed the plan, which isn’t surprising given the control Allianz already has over the company and the relatively generous nature of the offer. Allianz also indicated that, when the tender offer expires, it “intends to apply a squeeze-out procedure” to achieve complete ownership. It also warned that the “exchange ratio in a potential merger might be less favorable for AGF shareholders than the terms of the tender offer, as the exchange ratio will have to be calculated on the basis of the intrinsic values of both companies [IDW S1 German methodology].”

In the same bulletin announcing the AGF transaction Allianz said it “will launch a cash tender offer for the outstanding 9 percent of Allianz Leben shares in order to achieve a 100 percent ownership of ADAG [its life operations] in Allianz Leben. ADAG will offer €750 [$967.50] in cash per Allianz Leben share, which constitutes a premium of 19.9 percent over the six month volume weighted average share price.”

CEO Michael Diekmann commented: “With the transformation of Allianz into a European Company (SE) we have made it clear that Europe is our home market. The buyout of AGF’s and Allianz Leben’s free float is therefore the logical next step following the integration of RAS into Allianz. This will help us create an even stronger platform to serve our European clients and further enhance our operating profitability.

“The transactions will strengthen Allianz’s position in its core home markets and business lines. AGF is a very attractive business with a solid performance over the past years. AGF constitutes a major part of Allianz’s operations, contributing 16.3 percent to Allianz’s global Life and Health premium income and 20.4 percent to its global Property and Casualty premium income. Allianz Leben is Germany’s No. 1 life insurer and accounts for more than 25 percent of Allianz’s worldwide life premiums. Both AGF and Allianz Leben are working on the development of European pension products and see many opportunities to identify future growth potential in this area.”

The bulletin also indicated that when the buyouts are completed Allianz will have control of its largest operating entities, which would enable it to “further streamline its group structure across regions and business units.”

In reference to credit insurer Euler Hermes, Allianz said it is “under no obligation to file a mandatory tender offer” for the Company’s shares, “as Euler Hermes does not constitute an essential part of the assets of AGF as defined under applicable French stock market regulations, and as AGF is already controlled by Allianz. Allianz has also no intentions to launch a voluntary offer for the outstanding shares in Euler Hermes.”

Jean-Philippe Thierry, Chairman and CEO of AGF and a Board Member of Allianz SE noted: “The transaction will create an opportunity for AGF shareholders to participate in the global growth perspectives of Allianz Group. They will hold shares in an integrated financial services provider that is well positioned across all business lines. Moreover, the reduced complexity of the organization will facilitate the management of our Sustainability Program.”

Allianz expects to formally file the tender offer for AGF by the end of February 2007. It plans to fund the €7.5 billion ($9.675 billion) cash outlay internally through the Allianz Group.

AGF has a strong market presence in Europe. According to Allianz it is No. 3 in Non-Life and No. 8 in Life in France. In Spain, through its 48.3 percent stake in Allianz Seguros, it’s No. 3 in Non-Life and No. 12 in Life. In the Netherlands it’s the No. 6 Non-Life insurer and the No. 10 life insurer.

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