Dutch Insurer NN Group Launches Bid to Buy Delta Lloyd for €2.4B

By | October 6, 2016

NN Group NV, the largest Dutch insurer by market capitalization, has launched an unsolicited offer to buy smaller rival Delta Lloyd NV for 2.4 billion euros ($2.7 billion) in cash.

NN Group said on Wednesday it was offering to pay 5.30 euros per Delta share, a 29 percent premium over the stock’s closing price on Tuesday, and 53 percent higher than its three-month average.

The offer comes after a long period of turmoil for Delta Lloyd as it made two successive share issues to shore up its balance sheet to comply with Europe’s new Solvency II capital adequacy rules for insurers.

NN, which was spun off from ING with very strong capital ratios, has seen its shares rise 19 percent over the past two years, while Delta Lloyd’s share price has fallen 71 percent in the same period, with its latest share issue made earlier this year despite fierce objections from some shareholders, who said it was unnecessary.

NN Chief Executive Lard Friese said, “We believe there is a clear and compelling logic to bring consolidation to the Dutch insurance market through a combination of the businesses of NN Group and Delta Lloyd in a way that benefits both companies and their stakeholders.”

Reuters reported last month that industry executives believe the low interest rate environment will lead to a new wave of consolidation in the European insurance market, driven by the potential for cost savings. The Netherlands central bank said in April it expects consolidation on the Dutch market.

Friese said the combined company would become a leading player in insurance, banking and asset management, benefiting from cost cutting and economies of scale.

However, hostile takeovers are extremely rare in the Netherlands, in part because companies including Delta Lloyd are armed with an array of defenses to thwart unwanted advances.

Delta Lloyd said only that it had received notice of the conditional proposed offer on Oct. 3 and was considering it with its financial and legal advisers Goldman Sachs and Allen & Overy.

Analysts at William Hawkins said the offer was worth about 12 times Delta Lloyd’s 2016 free capital generation target of 200-250 million euros, with “synergies we think are likely substantial.”

“We would expect Delta Lloyd’s share price to trade above the current offer price today and we doubt their management team will accept this first offer,” they said in a note.

Delta Lloyd shares were up by nearly 29 percent at 5.297 euros by 0928 GMT, off the day’s high of 5.389 euros, while NN’s share price was down 2.1 percent at 26.51 euros.

Separately Delta Lloyd announced on Wednesday it would legally merge its Dutch and Belgian operations, which it said would lead to a 5 percentage point improvement in its Solvency II capital ratio.

After second-quarter earnings NN reported a Solvency II ratio of 252 percent of the minimum level of core capital required, while Delta Lloyd’s stood at 173 percent of its minimum requirement after it had sold 650 million euros worth of shares in a dilutive rights issue at 2.85 euros per share, and after it sold its 30 percent stake in bank Van Lanschot for 180 million euros.

NN Group is the largest stock market-listed Dutch insurer by market capitalization, followed by Aegon NV whose business is mostly in the United States. ASR, a diversified, recently privatized insurer is third-ranked while life insurer Delta Lloyd is now fourth.

($1 = 0.8917 euros) (Editing by Greg Mahlich)

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