Intact Financial Corp. (IFC) signed a definitive agreement with Paris-based AXA Group http://www.axa.com for the acquisition of its affiliate, AXA Canada, a home, auto and business insurance company, for $2.6 billion in cash. IFC says a further performance-based contingent consideration of up to $100 million also may be payable, if certain profitability metrics are met within a five-year period. The transaction is expected to close later this year, upon the receipt of all required regulatory approvals.
As a result of the transaction, IFC says it will expand its position in Canada by increasing its direct premiums written by to more than $6.5 billion.
The transaction is expected to generate an internal rate of return (IRR) of 20% and provide annual operating earnings per share accretion of 15% in the mid-term. Annual synergies amounting to a minimum of $100 million after-tax are expected from a combination of systems-related cost savings, external loss-adjustment expense reductions, and operational and claims efficiencies, says IFC. Furthermore, IFC is expected to increase its profitability outperformance versus the industry, and to benefit from greater earnings stability resulting from a wider diversification of its activities across the country and business lines.
CIBC World Markets Inc. is acting as sole financial advisor to IFC. IFC intends to finance the acquisition of AXA Canada and related transaction expenses using $500 million of its own excess capital, issuing $800 million of equity, net of commissions, through a bought deal subscription receipt offering, and by accessing committed senior in unsecured credit facilities fully underwritten by CIBC of $1.3 billion expected to be partly replaced by the issuance of medium-term notes and preferred shares. The combined entity will generate significant cash flows, and it is expected that IFC's debt-to-total capital ratio will be at its optimal level of 20% within 24 months from the closing of the acquisition. IFC will maintain a strong capital position with an MCT of more than 200%.
IFC says it has entered into an agreement with a group of underwriters, co-led by CIBC World Markets Inc. and TD Securities Inc., for an issue of 17.5 million subscription receipts at a price of $47.80 per subscription receipt, for gross proceeds of $836.5 million. This is pursuant to a bought deal public offering in Canada, where each subscription receipt will entitle the holder to receive one common share of IFC upon closing of the acquisition. IFC also has granted the underwriters the option to purchase an additional 2,625,000 subscription receipts, exercisable at the offering price, for a period of 30 days after the closing for additional gross proceeds of up to $125.5 million. This offering is expected to close June 9, 2011.
