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Axa Sells U.K. Unit to Resolution for $4.1 Billion

Founder of Resolution Ltd. Clive Cowdery. Source: Resolution via Bloomberg
Founder of Resolution Ltd. Clive Cowdery. Source: Resolution via Bloomberg

(Closes the shares in fifth paragraph.)

By Fabio Benedetti-Valentini and Kevin Crowley

June 24 (Bloomberg) -- Axa SA, Europe’s second-biggest insurer, agreed to sell most of its British life unit to Clive Cowdery’s Resolution Ltd. for 2.75 billion pounds ($4.1 billion) as the company switches its focus to Asia.

Resolution plans to raise 2.06 billion pounds in a rights offering to help fund the purchase, it said in an e-mailed statement today. Resolution’s shares, which were suspended on June 14, will resume trading the day after its offering prospectus is published at the end of this month.

Axa, like fellow European insurers including Prudential Plc, is cutting business in developed markets such as the U.K. to fund growth in faster-growing Asian economies. Resolution will merge the assets it buys from Axa with Friends Provident Plc, which it bought for 1.9 billion pounds last year.

“Axa is cashing in to reallocate that capital,” said Trevor Moss, a London-based analyst at Berenberg Bank who has a “hold’ rating on Resolution. “Axa is getting a good price.”

Axa fell 2.3 percent to 13.25 euros in Paris, giving the insurer a market value of 30.3 billion euros ($37.5 billion). The stock has fallen 20 percent this year, more than the 4.2 percent drop in the 30-member Bloomberg Europe 500 Insurance Index. Resolution has a market value of about 1.5 billion pounds.

Booking a Loss

Axa’s shareholder equity will increase by about 800 million euros following the transaction, the company said. It will book an exceptional loss of about 1.4 billion euros this year as a result of the sale.

“This gives additional leeway” to finance potential takeovers or to bolster existing businesses, Chief Executive Officer Henri de Castries said on a conference call. “We believe a lot in geographical diversification.” Axa will still be profitable in the first half once the effect of selling the U.K. assets is taken into account, he also said.

The Paris-based insurer expects to complete the sale in the third quarter as about 2,200 employees are transferred to Resolution, it said. The deal still needs approval from Resolution’s shareholders.

Resolution, backed by U.K. institutional investors including Aviva Plc and Schroders Plc, is halfway through its plan to buy as many as four insurers before merging them and selling them back to the market by 2013. The buyout firm is betting lower U.K. sales and regulatory changes will force insurers to exit the country or merge books of policies.

Market Share

Resolution, founded by Cowdery in 2008, will pay Axa 2.25 billion pounds in cash and about 500 million pounds in notes. Axa U.K. will double Friends Provident’s share of the British life and pensions market. Friends Provident was the 11th biggest British life insurer in 2008 and Axa was the eighth largest, according to the Association of British Insurers.

“They had endeavored to make an acquisition within a certain period and they came to the point where they needed to do something,” Moss at Berenberg said.

Resolution expects to make annual cost savings including job cuts of about 75 million pounds, or 16 percent of the combined cost base, until 2014 from merging the businesses. Friends Provident has about 4,000 employees worldwide. Resolution CEO John Tiner today declined to say how many employees may lose their jobs.

Resolution will reduce the amount paid to Axa by 150 million pounds if it releases less than 1 billion pounds from the French insurer’s “inherited estate.” An inherited estate is a surplus built up from customers’ savings over time that is typically split between policyholders and shareholders.

Wealth Management

Axa is selling its U.K. “traditional” life and pensions operations, its protection and corporate-pensions businesses and its annuity unit in the country, the French insurer said. It will keep U.K. operations including wealth management, health care and asset management.

Life and pension sales in the U.K. have fallen in the last two years as British consumers paid down debt rather than saved. European insurers will probably be asked by the European Union to hold more capital reserves as a result of the new Solvency II rules to be introduced in 2012.

Axa’s U.K. life and savings operations posted a 33 million- euro net loss in 2009, compared with a 257 million-euro profit a year earlier as investment fees and premiums dropped.

The French company is trying to acquire Axa Asia Pacific Holdings Ltd.’s operations in eight Asian countries, including China, Singapore, Indonesia, and Malaysia. It already owns 54 percent of the Melbourne-based company.

“The sale unblocks the situation, showing the management’s capacity” to make acquisitions and disposals outside of France, said Francois Chaulet, who helps manage 160 million euros at Montsegur Finance in Paris and holds Axa shares.

Shedding Assets

Axa is also weighing the sale of an Asian business. National Australia Bank Ltd. said June 4 it was in preliminary talks with potential buyers of an Axa Asia Pacific asset in an attempt to gain regulatory approval to purchase the investment manager. Melbourne-based National Australia Bank said June 1 it agreed with Axa SA to extend until July 15 an accord to buy asset manager Axa Asia Pacific.

The U.K. unit sale and the Axa Asia Pacific operation “have no link,” de Castries said. “NAB is telling us that it’s having discussions in a positive way with the Australian authorities,” de Castries said. “Things are advancing.”


Friends Provident CEO Trevor Matthews and Finance Director Evelyn Bourke will become CEO and finance director of the new combined U.K. company, Tiner said on a conference call.

The price paid by Resolution represents 79.8 percent of Axa U.K.’s market consistent embedded value. Resolution paid 1.9 billion pounds in cash and stock for Friends Provident, or 65 percent of its embedded value. Embedded value is a measure insurers use to calculate future payments from existing policyholders.

Resolution’s existing investors have agreed to sub-underwrite at least 52 percent of the shares sold in the rights offer. RBC Capital Markets and Barclays Capital, who are managing the share sale, agreed to underwrite the remaining stock. Total underwriting costs will be 55.9 million pounds, or 2.72 percent of the rights offer, Resolution said.

“The transaction is a large step toward building a large-scale life insurer that will deliver earnings growth with stable cash generation and support the payment of a sustainable growing dividend,” Tiner said.

Resolution will raise 2.06 billion pounds in the rights offering, selling 17 new shares at 150 pence each for every 30 shares already held. That’s a 38 percent discount to the theoretical ex-rights price of 242.2 pence a consolidated share, based on the 60.3 pence closing price on June 11, Resolution said in the statement.

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