Dai-Ichi Life to Buy Remaining Stake in Tower Australia for $1.2 Billion

Dai-ichi Life Insurance Co., Japan’s second-biggest life insurer, agreed to buy a full stake of Tower Australia Group Ltd. for A$1.2 billion ($1.2 billion), its biggest overseas acquisition.

Dai-ichi Life, which owns 29 percent of Tower Australia, will buy the remaining shares in the first half of next year, the Tokyo-based company said in a statement today. The transaction is expected to close in May.

The Japanese insurer sold shares to the public in April to fill its war chest for acquisitions as the economy is forecast to slow to 1.5 percent next year and the population ages faster than other developed nations. Australian workers will increase pension savings to A$6.1 trillion by 2035, from A$1.1 trillion in July, according the government.

“It is vital for insurers to move and conduct business overseas,” said Winston Barnes, head of sales and trading for Asian markets at WJB Capital Group Inc. in San Francisco. “It is hard to judge whether this is a wise use of their capital at present, for investors will have to wait years to potentially realize a possible return on investment.”

Dai-ichi Life rose 2.1 percent to 133,600 yen at the 3 p.m. close of Tokyo trading. The shares have fallen 18 percent since listing on the Tokyo Stock Exchange. Tower Australia slid 1.1 percent to A$2.73 in Sydney at the close of trading on Dec. 24.

Price Premium

The acquisition represents a 46.5 percent premium over Sydney-based Tower Australia’s share price before the announcement, Dai-ichi Life said. It said it plans to acquire stock options held by managers at Tower for about A$70 million.

Tower trades at 1.3 times its book value, the second lowest among six Australian insurers tracked by Bloomberg. Dai-ichi’s offer of A$4.00 a share values the stock at 1.95 times, higher than the 1.8 multiple for the six companies, according to data compiled by Bloomberg.

Tower confirmed that Dai-ichi made the offer and its directors met to consider it, Ian Smith, a spokesman for the company, said in an e-mailed statement.

“Dai-ichi has enjoyed an excellent relationship with Tower since investing in 2008 and has demonstrated strong support in management and staff,” said Smith, a partner at Adelaide-based Bespoke Approach, a firm that advises Tower.

Retirement Incentives

The Australian government is increasing incentives for people to save for retirement, this month moving to cut pension fees by A$2.7 billion. The MySuper plan may reduce fees savers pay to asset managers by 40 percent, helping the average worker retire with an extra A$40,000, according a government- commissioned study.

In November, Tower Australia said full-year net income rose 88 percent to A$87.4 million.

“The life insurance market in Australia has shown steady growth, reflecting favorable economic conditions,” Dai-ichi said in the statement, adding that it “especially sees growth opportunities in the risk insurance market.”

The insurer, established in 1902, purchased about 30 percent of Tower Australia from Guinness Peat Group Plc for 37.6 billion yen ($456 million) in 2008. The Japanese company also has operations in Vietnam, India and Thailand.

Japan’s life insurers are struggling for new customers after the first global recession since World War II. One in five Japanese citizens is over 65 years old. Only 13 percent are under 15, according to government statistics.

‘Continue to Shrink’

The nation’s economy will grow 1.4 percent in 2011, according to the median estimate of economists surveyed by Bloomberg News. That compares with growth of 9 percent projected for China and 2.6 percent in the U.S., the estimates show.

Last month, Dai-ichi Life said first-half net income fell 42 percent to 29.4 billion yen from a year ago as premium income and the value of investments declined. Premium income fell 15 percent to 1.67 trillion yen.

“It’s a positive growth scenario for a life insurer to go overseas as the Japanese market will continue to shrink due to the dwindling birthrate and aging population,” said Hidemasa Mizumoto, an analyst at Mizuho Investors Securities Co. in Tokyo. “The acquisition will spur Dai-ichi Life to accelerate its overseas acquisitions.”

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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