Manulife Financial Corp. (MFC) and AIA Group Ltd. (1299) are among companies that were invited to make second- round bids for ING Groep NV (INGA)’s Asian insurance business, said four people with knowledge of the matter.
Korea Life Insurance Co. and KB Life Insurance Co. were also put on the so-called shortlist of companies that can make binding offers, said the people, who declined to be identified because the process is confidential.
ING, under European Union orders to divest its insurance and asset management operations before the end of 2013 as a condition of state aid, is seeking at least $7 billion for the business, people with knowledge of the matter said in March. The company, led by Chief Executive Officer Jan Hommen, opted to sell the Asian units separately from the European as the region’s debt crisis damped prospects for divestments there.
The sale may result in cash proceeds for ING of about 4.6 billion euros ($5.7 billion) after payment of debt, according to an estimate from Rabobank International analyst Cor Kluis on May 10.
The Korea Economic Daily earlier today reported Korea Life and KB Financial Group Inc. (105560), the owner of KB Life, were on the bidding shortlist. Korea Life is interested in ING’s Southeast Asian business, one person said.
Patricia Chua, a spokeswoman at ING in Hong Kong, declined to comment, as did spokesmen for the bidders.
The Dutch company is also selling its asset management business in Asia and has invited potential buyers, including Manulife, to make second-round bids, three people with knowledge of the matter said this week. The business is worth about 500 million euros, according to an April 19 estimate by Hans Pluijgers, an Amsterdam-based analyst at Credit Agricole Cheuvreux.
ING’s Asia insurance operations are spread across the region, with larger businesses in Korea, Japan, Malaysia and Hong Kong, Credit Suisse Group AG analysts Arjan van Veen and Frances Feng wrote in a Feb. 14 report. AIA is “best-placed to absorb” ING’s insurance operations outside of Japan and Korea.
An AIA acquisition of ING’s non-Japan business “would lead to a significant geographical footprint expansion,” strengthening AIA’s businesses in weak areas such as Korea and solidifying its positions where it is already strong, such as Hong Kong and Malaysia, they added. It could also improve its bancassurance networks and skill set, they said.
The potential acquisition would lift AIA’s market share in Hong Kong to No. 1 from second place, and catapult its Korea ranking to fourth from 10th, the Hong Kong-based analysts said.
Credit Suisse yesterday upgraded AIA’s investment rating to outperform. It cited among the reasons increased merger and acquisition “potential and probability” with ING selling its Asia assets and a few other smaller potential acquisition targets in the region.
Still, an acquisition of the ING business could risk increasing AIA’s share of profit from mature markets and making it more sensitive to interest rate changes and high guaranteed returns for policyholders, the analysts said in February. Both could lower the valuation of the company which is currently valued as a growth stock in the medium term, they added.
AIA would consider acquisitions that “if it makes sense, if we find it adds value to shareholders, if it’s financially viable,” CEO Mark Tucker said upon announcing the company’s annual results in February.
The company’s free surplus, a measure of excess capital over what is required to be held by regulators, surged 19 percent to $5.9 billion in the year to Nov. 30.
Asia and wealth management are the two biggest opportunities for Manulife to expand, CEO Donald Guloien said in a telephone interview earlier this month. The Canadian insurer, which has operated in Asia for 115 years, has bolstered operations there through joint ventures, acquisitions and expanding its teams of agents and brokers.
Few companies are as well-positioned as Canada’s largest insurer to benefit from Asia’s doubling of its middle-class population over the next decade, Guloien said. Manulife’s growth potential in Asia is about twice the pace of gross domestic product expansion in the area, he added.
Profit from Asia of the Toronto-based company reached C$1.1 billion ($1.07 billion) in the first quarter as a result of record insurance sales, higher premiums and deposits, more than triple the amount a year earlier.
Asia represented one-third of its so-called operating results last year, which includes operating income, revenue, and premiums and deposits. Five years ago, Asia accounted for about 20 percent of those results, Chief Financial Officer Michael Bell said earlier this month.
Manulife entered Asia in 1897 when it issued a policy in Shanghai, and later expanded to Hong Kong, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia, Taiwan and Vietnam, according to its website.
The insurer has more than 50,000 agents selling products including life insurance, health insurance and wealth management in Asia, and has distribution through more than 100 bank partnerships and 500 dealers and brokers.
AIA’s Hong Kong-traded shares have risen 4 percent this year, outperforming the 0.5 percent increase in the Hang Seng Finance Index, which tracks 12 Hong Kong-listed financial institutions. Manulife’s shares traded little changed in Toronto this year.