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Intact Financial Corp has agreed to buy the Canadian arm of AXA Group for C$2.6 billion ($2.684 billion) in cash in a move that will boost its premiums by more than 40 percent and diversify its product mix.
The deal to acquire AXA Canada, the 6th largest home, auto and business insurance company in the country, will increase its direct premiums in Canada by C$2 billion [US$2.065 billion] to more than C$6.5 billion. [US$6.71 billion]
The acquisition will enable Intact, already Canada’s largest provider of property and casualty insurance, to expand its commercial business, particularly in the midmarket segment, and strengthen its presence in Atlantic Canada as well as in the provinces of Quebec and British Columbia.
“The acquisition creates new opportunities for IFC as it will strengthen our offerings, notably in business insurance,” Intact Chief Executive Charles Brindamour said in a release on Tuesday announcing the deal with Paris-based AXA.
Intact, the former Canadian insurance arm of ING, the Dutch financial group, operates under the Grey Power and Belair Direct banners. As long ago as November it said it was on the hunt for acquisitions to build on its leading position in the Canadian insurance market.
AXA has ballooned in 30 years from a small mutual insurer in Normandy to become Europe’s second-biggest insurer. Its current chief executive, Henri de Castries, is facing growing questions about the company’s push into emerging markets and anemic share price performance,
AXA recently completed the sale of its Australasian operations to Australian wealth manager AMP for A$3.5 billion (US$3.53 billion). The deal will allow AXA to take full control of its other Asian assets and increase its exposure to growth in markets with the potential for rapid growth.
The transaction, announced on Tuesday, is expected to close later this year after receiving required regulatory approvals.
Toronto-based Intact plans to fund the deal using C$500 million [US$516.2 million] of cash on hand, an C$840 million [US$867.22 million] equity issue and credit facilities worth C$1.3 billion [US$1.342 billion].
Intact said the combined entity will generate significant cash flow, and it expects its debt-to-total-capital ratio to reach an optimal level of 20 percent within 24 months of the closing of the acquisition.
The deal is expected to generate an internal rate of return of 20 percent and boost annual operating earnings per share by 15 percent in the mid-term. It is also expected to result in annual savings of over C$100 million [US$1.032 million].
CIBC World Markets acted as Intact’s sole financial adviser on the deal.
Shares of Intact, which were halted earlier in the day at C$49.77 [US$51.38], down 40 Canadian cents, did not resume trading before the closing bell on Tuesday.
(Reporting by Euan Rocha and Pav Jordan; Editing by Frank McGurty)