Talanx AG, Germany’s third-biggest insurer, called off its initial public offering for a second time in three months after investors balked at the price.
“Investor feedback on the company’s valuation deviated significantly from the estimated minimum fair value that had been communicated to Talanx by the investment banks managing the transaction,” Hanover, Germany-based Talanx said yesterday.
Talanx, which has been considering an IPO for more than a decade to finance expansion, postponed a plan to sell shares in June because of the European sovereign debt crisis. Shelving the IPO for a second time was a surprise because the market was good for the past few weeks, said Ben Cohen, an equity analyst at Canaccord Genuity in London. Talanx, led by Chief Executive Officer Herbert Haas, may have faced competition from Royal Bank of Scotland Group Plc’s planned IPO for its Direct Line insurance unit, he said.
“Someone might have given Talanx the advice they wanted to hear instead of being realistic,” said Cohen. “Direct Line was also competing for investors’ money.”
Haas told German newspaper Frankfurter Allgemeine Sonntagszeitung in an interview earlier this month that only a surprise shock such as the Japan earthquake in 2011 could challenge the insurer’s IPO plan and that Talanx plans to pay a full dividend for 2012.
The IPO would have been the first big share sale by an insurer in Germany since Hannover Re, which is majority-owned by Talanx, sold shares in 1994.
Terms obtained by Bloomberg on Sept. 3 showed that the company sought to raise 700 million euros ($904 million) in what would have been Europe’s biggest IPO since February. It had planned to list shares in Frankfurt and Hanover. Other German companies, including Osram AG, Evonik Industries AG and Rheinmetall AG’s car-part unit Kolbenschmidt Pierburg AG have also canceled or postponed planned IPOs this year.
The IPO would have also included an additional 300 million euros of shares from a convertible bond that Talanx sold to Japanese insurer Meiji Yasuda Life Insurance Co. in November 2010. That would have made it the biggest German IPO since Gerresheimer AG, a medical packaging company, went public in June 2007. Without Meiji Yasuda’s shares, it would have been the biggest since Brenntag AG’s stock sale in March 2010.
“Despite positive feedback on the business model of Talanx, it became clear that, from the company’s perspective, a placement of the shares would only be feasible with a disproportionately high discount on the valuation that had originally been determined by the banks,” the insurer said.
Valuations of insurers have been depressed by risks related to the European debt crisis and pressure on investment income from low interest rates. The Stoxx 600 Insurance Index is valued at 0.88 times its companies’ book value, or firms’ assets minus liabilities. That compares with an average book value of 1.52 for members of the broad benchmark Stoxx Europe 600 Index.
“We have always stressed that we do not have to sell our shares at any price,” Haas said. “The size of the valuation discount demanded by the investors was unacceptable both for us and for our shareholder.”
Talanx is owned by HDI Haftpflichtverband der Deutschen Industrie VaG, a German mutual insurer. HDI, which is based in Hanover and owned by its insurance customers, has said it will keep a majority stake should Talanx sell shares to the public.
To speed up growth, it acquired Poland’s Towarzystwo Ubezpieczen i Reasekuracji Warta SA earlier this year from KBC Group NV for 770 million euros, beating rivals in eastern Europe’s largest insurance market. When the purchase is completed in the second half of 2012, Meiji Yasuda will take over 30 percent of Warta, Poland’s second-largest insurer.
Warta was the second Polish takeover announced by Talanx within two months after the company said in December that it will pay 912 million zloty ($288 million) for a controlling stake in insurer Europa SA.
Talanx has hired Deutsche Bank AG, Citigroup Inc. and JPMorgan Chase & Co. to manage the share sale with Rothschild acting as an adviser.
The insurer, which owns a 50.2 percent stake in Hannover Re, the world’s fourth-biggest reinsurer, said on Aug. 14 that second-quarter net income rose 4 percent to 143 million euros. Talanx could have joined Germany’s 110 biggest publicly listed companies as the fourth insurer after Allianz SE, Munich Re, the world’s biggest reinsurer, and Hannover Re.
RBS is set to start the IPO for its insurance unit Direct Line this week, said people with knowledge of the matter. The lender will seek to sell about 25 percent of the business to raise as much as 1 billion pounds ($1.6 billion), the people said. It would be the U.K.’s biggest IPO since Glencore International Plc raised $10 billion in May 2011.