British buyout firm Resolution Ltd. (RSL.L) said Thursday that it has agreed to acquire the UK Life Business of French insurer AXA SA (AXAHY.PK) for up to GBP 2.75 billion or US$4.11 billion. The deal is expected to close in September, subject to certain conditions, including the approval of the UK Financial Services Authority or FSA. Resolution also announced a fully underwritten rights issue of approximately GBP 2.055 billion to finance the deal.
AXA said the sale to Resolution includes its UK-based traditional life and pensions businesses, its IFA protection and corporate pension businesses, and its annuity businesses, but not the AXA Wealth Management operations. AXA also said the sale is consistent with its intention to focus on growing its wealth management business in the UK life & savings market.
On June 14, Resolution, a vehicle set up by insurance entrepreneur Clive Cowdery, had confirmed media speculations that its in talks to buy Axa's UK operations in the risk areas of protection and annuities as well as its group pensions business.
The deal reportedly is part of Cowdery's plan to increase Resolution's UK life insurance holdings over 18 months as larger financial institutions, stung by recession, offload assets.
Resolution noted that the latest acquisition is a key step in achieving its targeted GBP 10 billion market consistent embedded value or MCEV for the Life and Asset Management Group. Following the deal, AXA UK Life Business will be combined with Friends Provident business, which was acquired in November 2009, and will ultimately be carried on under the new brand, "Friends Life". The combined business is expected to have well-diversified distribution channels through IFAs, direct sales, bancassurance and other sales partners.
In the transaction, which is considered as a reverse takeover, Resolution's subsidiary FPH will buy the AXA UK Life Business by purchasing all of the issued shares of AXA Sun Life Holdings Limited and Winterthur Life UK Limited, respectively
The total consolidation in the deal includes GBP 2.224 billion to be paid in cash at completion, GBP 26 million net to be paid in cash on completion of certain steps in an agreed post-completion reorganisation, and up to GBP 500 million, consisting of deferred consideration notes to be issued to AXA.
The company pointed out that the deal price will be reduced if less than GBP 1.00 billion of the AXA reattributed inherited estate is available for release in 2011. If none of the estate is available, the consideration will fall to GBP 2.60 billion.
Resolution intends to finance the deal through a fully underwritten rights issue of about GBP 2.055 billion, gross, a 'certain funds' Acquisition Finance Facility of GBP 400 million, as well as existing funds of the RSL Group. The company said its leading shareholders having already sub-underwritten more than 52% of the Rights Issue. Discussions with other shareholders are expected to result in further sub-underwriting being taken up.
The Board plans to recommend shareholders to vote in favour of the acquisition that will be proposed at the General Meeting.
Commenting on the acquisition, John Tiner, Chief Executive of Resolution Operations LLP, a privately owned advisory and operating firm which provides services to Resolution, said, "The Enlarged Group will be well positioned to create value from enhanced cashflow, significant synergies and selected profitable new business growth. We see a strong pipeline of potential further consolidation steps which will help complete the Company's UK Life Project, and we will remain highly disciplined on the selection and pricing of possible transactions."
According to Resolution, AXA UK Life Business is a logical next step in the company's UK Life Project and it has a good operational fit with Friends Provident. The latest acquisition is projected to provide increased scale in the key product areas of protection and corporate pensions, as well as an enhanced opportunity in the annuity market.
The company noted that adding the AXA UK Life Business would have doubled the 2009 market share of the Friends Provident business in the UK life and pensions market.
The AXA UK Life Business had a pro forma MCEV, on the RSL Group basis, of GBP 3.45 billion as of December 31, 2009 and had approximately GBP 53 billion of financial assets. The company noted that the deal price represents 79.8% of the pro forma MCEV of the AXA UK Life Business, and 72.7% of the pro forma Net MCEV. This implies a blended average net acquisition price for Friends Provident and the AXA UK Life Business of 68.8% of Net MCEV.
Meanwhile, Resolution had a net MCEV of GBP 3.49 billion as at December 31, 2009. The acquisition is therefore a key step towards achieving the company's target of a Life and Asset Management Group with a GBP 10 billion MCEV, the company noted.
Resolution expects the deal to result in annualised expense synergies of about GBP 75 million per annum emerging over three years, with the full impact expected in 2014, and associated one-off implementation costs and separation costs of GBP 74 million and GBP 57 million respectively. The company also expects that the deal brings potential for further revenue and financial synergies.
Resolution's Board intends to undertake a share consolidation following the rights issue..
AXA said that following the sale, it will account about EUR 1.4 billion exceptional capital loss in net income in 2010.
On the London Stock Exchange, RSL.L last traded on June 11 at 60.30 pence.
AXAHY.PK settled at $16.82 on the Pink Sheets on June 23 on a volume of 125,400 shares.
For comments and feedback: editorial@rttnews.com