AIG Takeover of Fuji Fire Offers 204% Arbitrage Gain After Quake: Real M&A
The biggest drop in Japanese stocks in a quarter-century is giving traders an opportunity for a threefold return by betting on American International Group Inc. (AIG)’s takeover of Fuji Fire & Marine Insurance Co.
AIG, the bailed-out insurer owned by the U.S. government, on Feb. 10 agreed to purchase the 45 percent of the Osaka, Japan-based casualty insurer it didn’t own through AIG’s Chartis Inc. unit for 146 yen a share. The $565 million offer, which closes March 24, would hand traders an annualized profit of 204 percent based on Fuji Fire’s share price yesterday, the largest of any pending deal in Japan above $500 million, according to data compiled by Bloomberg.
Fuji Fire, which had traded within one yen of AIG’s offer price since the announcement, fell 4.1 percent in the past two days as the devastation from Japan’s strongest earthquake on record led to a 16 percent drop in the Nikkei 225 (NKY) Stock Average. While Standard & Poor’s cut its outlook on the nation’s non-life insurers to negative yesterday on concern payments are likely to exceed those recorded after the Kobe earthquake in 1995, AIG said that it remains “committed” to the deal.
“Your word, you want it to remain good,” said Jonathan Hatcher, a strategist who covers financial institutions at Jefferies Group Inc. in New York. “Just because something like this happens, you don’t walk away. And that’s even more firm when you already own the majority of it anyway.”
Today’s Trading
Fuji Fire rebounded 6 yen, or 4.3 percent, to 145 yen in Tokyo trading today.
The 9-magnitude earthquake sent more than 300,000 people to emergency shelters, may have killed 10,000 in Miyagi prefecture north of Tokyo and has closed factories at Sony Corp. of Tokyo and Toyota City-based Toyota Motor Corp., according to police estimates and company statements.
Insurers may face claims of as much as $34 billion, which would make the disaster the second costliest ever, according to risk-modeling consultants AIR Worldwide.
AIG, which owned 55 percent of Fuji Fire, said on Feb. 10 that it planned to buy all common shares and stock acquisition rights. Fuji Fire’s board of directors supported the tender offer, it said.
“We have been doing business in Japan since 1946 and remain strongly committed to its people and the Japanese market,” said Mark Herr, a spokesman for New York-based AIG, in an e-mail yesterday to Bloomberg News. “We also remain committed to the Fuji transaction.”
Offer Price
The offer of 146 yen a share was 29 percent higher than Fuji Fire’s average share price in the 20 days before the announcement and valued the remaining stake at about 47 billion yen ($565 million), according to data compiled by Bloomberg and a statement from AIG.
“We are proceeding with the planned takeover and we haven’t been told otherwise,” said Mika Ono, a Tokyo-based spokeswoman at Fuji Fire, in a telephone interview today.
The tender offer began on Feb. 14 and is set to close next week, the data show. Shares of Fuji Fire, which jumped 25 percent in the first trading day after the Feb. 10 announcement, fell on each of the previous two days on speculation that AIG wouldn’t follow through with the deal.
The decline left Fuji Fire’s shares at 139 yen yesterday, 4.8 percent below AIG’s bid. With the deal expected to close on March 24, a 5 percent gain over nine days would equal a 204 percent return over a full year, Bloomberg data show.
Majority Stake
AIG built its majority ownership in Fuji Fire over a decade. The U.S. insurer agreed to buy a 3.6 percent stake in 2000, prompting analysts to predict an eventual merger.
Fuji Fire was bailed out by AIG and Orix Corp. in 2002 after mergers among Japan’s biggest casualty insurers intensified competition and hurt profits. AIG and Orix agreed to buy 20 percent and 22 percent stakes, respectively, in Fuji Fire to boost capital after it posted a 1.9 billion yen loss in the prior six-month period.
A year ago, AIG agreed to increase its stake to more than 50 percent.
Fuji Fire’s profit will almost double to 9.1 billion yen in the year ending this month from the previous fiscal year, extending its rebound from a 59.6 billion yen loss in 2009, according to analysts’ estimates compiled by Bloomberg.
The insurer still trades at 0.9 times book value, or assets minus liabilities, in line with the average for the Topix index of 1,666 companies, data compiled by Bloomberg showed. A valuation of less than one suggests a company would fetch more if shareholders fired its executives and sold all the assets.
Elsewhere in mergers and acquisitions, Dish Network Corp. (DISH), the second-largest U.S. satellite-television provider, won court approval yesterday to acquire DBSD North America Inc., the Reston, Virginia-based satellite communications company that filed for bankruptcy in 2009.
Dish’s revised offer valued DBSD at $1.5 billion, according to court filings. Englewood, Colorado-based Dish, a DBSD creditor, is buying the firm from parent ICO Global Communications (Holdings) Ltd. in Kirkland, Washington.
Overall, there have been 4,701 deals announced globally this year, totaling $462.3 billion, a 12 percent increase from the $413.5 billion in the same period in 2010, according to data compiled by Bloomberg.
To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.
To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net.
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