Clive Cowdery is back in the limelight, as the insurance entrepreneur’s Resolution Group confirmed talks to buy part of Axa’s UK business for about £2.8bn.
Resolution shares have been suspended from trading on the London Stock Exchange on Monday ahead of a more detailed announcement, following the group’s statement, as follows (our emphasis):
Resolution confirms that it is in discussions regarding the potential acquisition of the majority of AXA’s UK life assurance businesses by Resolution. The businesses to be acquired are AXA’s UK operations in the risk areas of protection and annuities and also its group pensions business. Total consideration under discussion is £2.75 billion, which is expected to be funded by a pre-emptive rights issue by Resolution of approximately £2 billion, £0.5 billion of Deferred Consideration Notes issued to AXA and also by acquisition bank debt.
Resolution intends to merge the acquired AXA businesses with its Friends Provident operations. The Board of Resolution believes that the businesses are complementary and have a good operational fit, offering the opportunity to create one of the UK’s largest providers of protection products and group pensions and accelerating Friends Provident’s strategy in annuities. The enlarged business would also have well-diversified distribution channels, through IFAs, direct sales, bancassurance and other sales partners.
Through its UK Life Project, Resolution is targeting the creation of a leading UK life assurance business with scale, market presence and a strong focus on generating sustainable cash-based returns for investors over the longer term.
The company stressed there was “no certainty the talks would result in a transaction.”
As the FT reported at the weekend, such a deal would see Resolution take the annuity, protection and group pensions businesses of Axa UK for about 80 per cent of their £3.5bn book value.
The Daily Telegraph, meanwhile, reports that Resolution has already lined up Barclays Capital and Royal Bank of Canada to carry out a fundraising to finance the takeover, while the Daily Express reports on Monday that the group is moving to sound out investors about a possible £2bn-plus cash call to fund the deal.
Resolution has commitments from its investors to raise up to £7bn in equity to help pay for its deals but could issue shares to vendors, notes the FT, adding that people close to the company have said Resolution has a short-term borrowing facility for up to £5bn “from two large banks.”
Axa, meanwhile, is being advised by Credit Suisse, which also advised the Prudential on its aborted $35.5bn bid for AIA, according to the FT.
Resolution bought Friends Provident for just under £2bn last year, and has since held talks with up to nine companies since it was created in 2008. The company has said it expects to consolidate three or four businesses by the beginning of 2011 with a view to selling an enlarged group by the end of 2012.
As Resolution itself claimed, a deal with Axa would create one of the UK’s largest protection and group pensions businesses, while also giving Resolution a presence in the annuities market – something which Friends Provident lacked.
Cowdery, the FT reminds us, “rose to prominence by consolidating closed life companies in the UK into a company also called Resolution, which he sold to Pearl Group for £5bn just as the financial crisis was beginning to unfold in early 2008″.
For Axa, which has been keen to exit the mature UK life market, the deal would provide capital for investment in other markets such as Asia, adds the FT. The French group is in the process of buying the shares of Axa Asia Pacific (Axa APH) that it does not already own, and selling its Australian business to either National Australia Bank or AMP.
In the UK, however, the French group intends to retain ownership of its wealth management business as part of any deal, and would also retain a presence in the UK’s general insurance and health markets.
As Axa said in a Monday statement about the impact of the deal:
In the event that the parties reach a definitive agreement and the transaction is completed, it would have the following principal impacts on AXA:
- Ca. €1.4 billion exceptional capital loss accounted for in net income in 2010,
- +4 pts on Solvency I, which was estimated above 180% at March 31, 2010,
- -1 pt on debt gearing, which was 26% at December 31, 2009
After the buy-back of €0.9 billion of AXA APH shares currently held by AXA Life UK, net cash proceeds would be of €1.7 billion for the Group.
While it said the potential deal “does not call into question in any way the AXA Group’s continuing long-term commitment to the UK market going forward”, British life insurance – clearly – is not quite doing it for the French group.
As one Swiss-based asset manager told Bloomberg: “For Axa, the UK wasn’t the most successful and profitable country… Resolution is very committed to gain market share in the UK, and a deal would allow Axa to move some capital to other regions with better profitability.”
Related links:
Resolution wrongfoots market with £25bn Axa bid – Telegraph
Axa in talks to sell unit to Resolution for £2.75bn – Bloomberg
Markets Live, Resolution earnings (Feb 11, 2010) – FT Alphaville
A friendly resolution - FT Alphaville