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By Kevin Crowley and Jon Menon
June 14 (Bloomberg) -- Axa SA, Europe’s second-biggest insurer, said it’s in talks to sell part of its U.K. life insurance unit to Clive Cowdery’s Resolution Ltd. for 2.75 billion pounds ($4 billion).
Resolution, the investment firm Cowdery started two years ago, plans to fund the purchase through a 2 billion-pound rights offer, the company said in a statement today. Axa would receive 2.25 billion pounds in cash and provide 500 million pounds in loans to Resolution to help finance the transaction, according to a separate statement from the Paris-based company.
European insurers including Axa and Prudential Plc are seeking to free up capital reserves used to back policies in slower-growing markets like the U.K. to fund growth in Asia, where margins are wider. Resolution paid 1.9 billion pounds for Britain’s Friends Provident Plc last year, the first of as many as four purchases it’s planning as it aims to merge U.K. life insurers and sell the enlarged group back to investors by 2013.
“For Axa, the U.K. wasn’t the most successful and profitable country,” said Karim Bertoni, who helps manage $18.5 billion at Banque Syz & Co. in Geneva. “Resolution is very committed to gain market share in the U.K., and a deal would allow Axa to move some capital to other regions with better profitability.”
Axa’s life insurance division is the eighth-biggest in the U.K., according to data compiled by the Association of British Insurers. Axa plans to keep its wealth management and non-life insurance operations in the U.K.
Axa’s U.K. life and savings operations posted a 33 million- euro ($39 million) net loss in 2009, compared with a 257 million-euro profit a year earlier. Axa’s gross annual life and savings sales in the U.K. fell 22 percent to 2.78 billion euros as investment fees and premiums dropped.
Axa SA is trying to acquire Axa Asia Pacific Holdings Ltd.’s operations in eight Asian countries, including China, Singapore, Indonesia, and Malaysia. The insurer already owns 54 percent of the Melbourne-based company.
Resolution suspended trading of its shares before the market opened today. The stock closed 0.3 percent lower at 60.7 pence in London trading on June 11, valuing the company at 1.46 billion pounds. Axa rose 3.7 percent to 13.6 euros in Paris trading today, giving the company a market value of 31.1 billion euros.
Resolution Chief Executive Officer John Tiner, who served as CEO of the Financial Services Authority from 2003 to 2007, said in March he aims to make two or more purchases, adding to the Friends Provident purchase. After creating a life insurer worth 10 billion pounds, Tiner intends to sell it by 2013, he said.
“Resolution has been under pressure to do a deal, and this should take some of that pressure off,” said Marcus Barnard, an analyst at Oriel Securities Ltd. in London who has a “buy” rating on the Resolution. “It’s a good deal, good price and fits well with Friends Provident and seems to be a reasonable next step for Resolution.”
Resolution said in a June 11 statement it plans to consolidate the U.K. businesses of Axa, France’s biggest insurer, with its Friends Provident operations. It’s seeking to reach an agreement on the purchase by the end of this month.
Labor union Unite said today it was concerned that Resolution will cut jobs at the combined company.
“Our concern at this time centers on the implications of the possible sale of this business for the job security, terms and conditions and pensions of the AXA workforce,” National Officer Siobhan Endean said in an e-mailed statement.
Insurance Sales Rise
Resolution posted net income of 1.16 billion pounds in 2009, compared with a 1 million-pound loss in 2008. First-quarter insurance sales rose 19 percent to 178 million pounds, as interest rates at record lows pushed British savers to seek higher returns in pension and savings products rather than hold their assets in cash.
Standard Life Plc, St James’s Place Plc and Legal & General Group Plc, which also sell life insurance in the U.K., all posted higher-than-expected sales in the first quarter.
Axa was advised by Credit Suisse Group AG. Citigroup Inc. is working with Resolution. Barclays Capital and RBC Capital Markets are advising on the right offering.