French insurer AXA sought full control of its majority-owned Asian arm to get a tighter grip on the region's booming markets, and stuck with plans to grow in China in spite of regulatory obstacles there.
The insurance market in Asia is growing faster than Europe and the United States, with Ping An Insurance <601318.SS> and China Life <601628.SS> among the top players in the region.
As part of its strategy to grow in Asia, AXA announced a two-stage deal on Monday to ultimately acquire full control of AXA Asia Pacific's most lucrative Asian operations.
First, AXA's regional Australian partner AMP will buy all of AXA Asia Pacific, including the 54 percent owned by parent AXA, in a deal valuing the target at about $10.3 billion.
AMP will then sell most of the business to AXA for about $7 billion, while keeping the Australian and New Zealand units. AXA said the deal would result in it making a net cash payment of 1.1 billion euros ($1.65 billion) for the Asian parts of AXA Asia Pacific.
AXA Asia Pacific rejected the proposal [ID:nSYD420146], saying it undervalued the business, but analysts said it was likely the parties involved would find an agreement.
The deal has an implied value of A$5.43 ($5.03) per AXA Asia Pacific share. The stock soared 32.5 percent to A$5.70.
AXA Chief Executive Henri de Castries said he was ready for further talks. Our offer is a reasonable one, and we are always ready to talk, he told reporters.
Mandarine Gestion fund manager Fabienne Girard-Tokay said the deal would probably get done although AXA would not overpay.
AXA Asia Pacific is one of the jewels in the crown and it's a very good idea to buy out the minority shareholdings, said Girard-Tokay, whose firm owns AXA shares.
AXA RIGHTS ISSUE
AXA will finance the buyout plan for its Asia Pacific subsidiary by a 2 billion euro ($3 billion) rights issue.
The rights issue was set as a 1-for-12 issue at a price of 11.90 euros -- a discount of around 30 percent to AXA's closing share price on Friday of 16.88 euros. AXA was down 1 percent at 16.72 euros in early afternoon trade in Paris.
AXA said the cash could also fund acquisitions in other fast-growing areas, such as central and eastern Europe where AXA also plans to acquire full control of some local subsidiaries.
AXA's exposure to fast-growing markets is weak, CM-CIC Securities said in a research note. This deal, along with others made possible by the rights issue, will help AXA significantly increase its market share, added CM-CIC.
CHINA STILL KEY DESPITE TAIKANG SALE
AXA will get more cash from selling 15.6 percent of Taikang, China's fourth-biggest life insurer.
Sources told Reuters on Monday that the stake had attracted foreign and domestic bidders, including Temasek , Blackstone KKR and Chinese firms, valuing the holding at more than $1 billion.
AXA inherited the stake in Taikang in 2006 when it agreed to buy Swiss insurance company Winterthur.
In China, AXA also has AXA-Minmetals Assurance Co Ltd, a 51/49 percent joint venture between AXA Group and state-owned China Minmetals Group, and AXA plans to invest more in AXA-Minmetals to expand its Chinese insurance coverage, sources told Reuters.
AXA's de Castries said there was no contradiction between the company's planned sale of its Taikang stake and its broader strategy of growing in China.
He said the Taikang sale had been imposed on it by Chinese authorities but AXA would seek out further deals in the country.
The fact that we are selling out of Taikang does not mean that our appetite for the Chinese market has diminished, said de Castries.
AXA's expansion in Asia comes as financial firms plan for a wave of consolidation in a recovery from the credit crisis.
Germany's Allianz , which ranks alongside AXA as Europe's top insurer, on Monday posted forecast-beating quarterly earnings but warned that economic weakness was still affecting demand.
($1=1.079 Australian Dollar)
(Additional reporting by Sudip Kar-Gupta; Editing by Andrew Callus and Simon Jessop)