The deal would be the biggest so far in a string of overseas
acquisitions by Japan's insurers. They're snapping up businesses in
markets from the United States to Southeast Asia as a path to future
growth while the rapid ageing and eventual shrinkage of Japan's
population clouds long-term earnings prospects at home.
Dai-ichi Life, Japan's second-largest private-sector life insurer,
plans to buy 100 percent of Protective Life, said a source with
direct knowledge of the matter. The 107-year-old U.S. company, based
in Birmingham, Alabama, has a market capitalization of $4 billion
and posted a net profit of $393.5 million in 2013 from operations
that span the country.
"For top (Japanese) insurers with large market share like Dai-ichi
Life, it would be very difficult to secure growth when the overall
domestic life insurance market starts shrinking," said Teruki
Morinaga, insurance sector analyst at Fitch Ratings in Tokyo. "So,
it has to go overseas," he said, adding he was commenting based on
media reports and hadn't independently verified their accuracy.
In a statement to the Tokyo Stock Exchange, Dai-ichi Life said, "It
is true that we are considering an acquisition of a U.S. life
insurance company. But nothing has been decided." A spokesman
declined to comment further.
Eva Robertson, vice-president of investor relations at Protective
Life, said in an email to Reuters that the company declined to
comment, citing company policy on media reports.
The source, who was not authorized to discuss the matter, said Dai-ichi
Life, worth close to $15 billion by market value, is planning to
fund half of the acquisition cost from existing reserves if the deal
goes through. The remainder would be sought externally, the source
said, including a possible share issue, along with loans.
As investors fretted over the potential for a dilutive impact on
their holdings from a deal, Dai-ichi Life's shares sank 5 percent by
the close in Tokyo in heavy trading, compared with a gain of 2.1
percent gain in the broader market. In a separate statement, the
company confirmed it is considering fund-raising options including
the issue of new shares.
"The acquisition itself is positive for the company in the long
term, but the market is wondering how the company will finance it,"
said Mitsushige Akino, chief fund manager at Ichiyoshi Asset
Management. "Dilution fears from a possible share offering plan hit
Japan is the world's second-largest life insurance market after the
United States by premium revenue. For now players enjoy relatively
stable income, but the ageing, and ultimately dwindling population
represents a risk for insurers - and many companies whose business
model is based on selling goods and services in the country.
From a peak of about 128 million in recent years, Japan's population
is forecast to fall 14 percent to close to 110 million by 2035.
Japanese companies are accelerating overseas acquisitions as one
strategy for shoring up earnings. So far this year, they have spent
$27 billion on mergers and acquisitions outside Japan, up from $10.4
billion during the same period a year ago, Thomson Reuters data
[to top of second column]
In one example, earlier this year, drinks maker Suntory Holdings Ltd
SUNTH.UL bought U.S. spirits company Beam for $13.6 billion cash in
a deal that would make the Japanese company the world's
third-largest spirits maker. (Full Story)
In the insurance sector, last month, Japan's largest private-sector
life insurer, Nippon Life Insurance Co NPNLI.UL, joined Japanese
peers expanding in rapidly growing Southeast Asian markets by
agreeing to buy 20 percent of Indonesia's Sequis Life for 4.87
trillion rupiah ($417.13 million). (Full Story)
Dai-ichi Life, the sole listed company among Japan's top four life
insurers, has forged ahead in overseas deals - and reaped the
benefit. It said in 2013 it was ready to spend 300 billion yen in
mergers and acquisitions over the next two years.
Acquisitions by the company include the buyout of Tower Australia
Group for $1.2 billion in 2010 and a 40 percent stake in Panin Life
of Indonesia for $337 million in 2013.
For the year ended in March, Dai-ichi Life was the only major life
insurer to post growth in insurance premium revenue, boosted by its
Australian unit. Sluggish domestic business weighed on its rivals.
The biggest acquisition by a Japanese insurer so far is Tokio Marine
Holdings Inc's 8766.T purchase of property and casualty insurer
Philadelphia Consolidated Holding Corp of the United States for
about $4.7 billion in 2008.
Many purchases by Japanese insurance companies have focused on
emerging Southeast Asian companies. But Fitch Ratings' Morinaga said
that due to strict foreign ownership rules, investments in these
companies tend to be minority stakes, and expensive by valuation
given emerging markets' high growth potential.
"Acquisition of companies in developed markets, on the other hand,
are not exceedingly high in valuation and would contribute to
earnings in relatively short term because they tend to be bigger in
size," he said.
Goldman Sachs is advising Dai-ichi Life on the planned acquisition,
according to two sources with direct knowledge of the matter.
(Reporting by Taiga Uranaka; Additional reporting by; Gregory
Roumeliotis, Ayai Tomisawa and Emi Emoto; Editing by Richard Pullin
and Kenneth Maxwell)
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