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Insurance Stalwart AXA to buy Bermuda-based XL with $15.4bn Cash Offer

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Published on : Mar 06, 2018

In the backdrop of declining profit margins in investments in financial markets, insurers, especially those providing specialist insurance seem to be hit hard. Coupled with unceasing pressure from low interest rates and stringent regulations, notably US tax reforms, a number of players in the reinsurance sector are facing falling stock prices.  Consequently, they are focusing on acquisitions and takeovers to tide over the rough weather. On March 5, 2018, AXA, a French multinational insurance firm, has agreed to buy XL Group Ltd., a globally prominent reinsurance company based in Bermuda for a $15.3 billion cash offer. The Europe’s insurance giant offered US$57.60 for each of the latter’s share and believed that the purchasing deal will catapult it to a leading position in the property and casualty insurance segment.

Takeover to help AXA Fortify Position in Property and Casualty Insurance Industry

Allianz SE, another Europe’s insurance stalwart was seen as a potential suitor, sources close to company didn’t consider the deal to significantly affect its strategies. Faced with falling rates, many players in the reinsurance sector are leaving the space, with a spate of takeovers being a testimony to this. For instance, last month American International Group, agreed to buy Validus Holdings, Ltd., Bermuda-based Reinsurance Company. The current mega purchasing deal is considered as the most prominent for AXA over the decade, giving it a firm foothold in the property and casualty insurance industry. Furthermore, the deal will enable it to grapple with the volatility of financial markets.

Deal Considered Overpriced

As announced by AXA, the deal financing options will consist of a combination of cash, debt, and the IPO proceeds from the business earnings in the U.S. Of note, the price for each share is pitched at a 33 percent premium to the closing price on March 2. Notwithstanding the vast synergetic effects, many skeptics consider the deal to be overpriced.

However, the acquisition does not bode favorably for investors, at least for now, since it lost almost a tenth of their value of the shares. Plus, many opine are skeptical of the strategic gains to AXA since XL has a marked exposure to U.S. businesses.