IAG to buy Wesfarmers NZ, Australian underwriting for $A1.85B
Insurance Australia Group has agreed to buy the New Zealand and Australian underwriting businesses of Wesfarmers for A$1.85 billion, to bolster its position in the two markets.
IAG would acquire Wesfarmers' WFI and Lumley Insurance brands as well as a 10-year distribution agreement with Coles, it said in a statement today.
The insurer will fund the transaction via a fully-underwritten A$1.2 billion institutional placement, of about 219 million shares at a discounted price of A$5.47 apiece, a non-underwritten share purchase plan capped at A$200 million, the issue of A$300 million of Tier 2 subordinated debt and from existing funds, it said. IAG shares last traded on the ASX at A$5.70. The stock has been halted for the placement.
"Acquiring these businesses supports the group's strategic priorities of accelerating profitable growth in Australia and sustaining our market-leading position in New Zealand, and we expect attractive EPS accretion," said IAG managing director Mike Wilkins.
"This is a unique opportunity, which is expected to deliver significant long-term value for IAG shareholders and unlock further growth potential for our businesses in Australia and New Zealand," he said.
Merging the Wesfarmers businesses with its own is expected to generate net synergies of about A$140 million a year before tax, the company said. Costs of integration would be $120million over two years.
In New Zealand, the Wesfarmers underwriting would be merged with IAG's existing NZI operations.
The transaction was expected to be completed in the second quarter of 2014. IAG affirmed its 2014 guidance for an insurance margin of between 12.5 percent and 14.5 percent.