Great-West Lifeco Inc., Canada’s second-largest insurer, agreed to buy Irish Life Group Ltd. for C$1.75 billion ($1.73 billion) from Ireland’s government as it seeks to expand European operations. Shares climbed the most in almost seven months.
The transaction will add about C$215 million, or 10 percent, to Great-West’s 2014 earnings, the Winnipeg, Manitoba-based company said today in a statement.
Chief Executive Officer Allen Loney is bolstering operations in Ireland, where Great-West sells coverage through its Canada Life brand. The Irish government re-opened talks with Great-West last year after abandoning them in November 2011 amid concerns about the euro-area debt crisis, two people with knowledge of the matter said Dec. 4.
“In Ireland, our operations were really below the size we needed to operate effectively,” Loney said in a telephone interview today. “Here was an opportunity, in one transaction, to leap from a relatively-modest market position to a market-leading position.”
The deal marks the Dublin-based government’s second transaction this year to lower its 64 billion-euro ($85 billion) gross cost of bailing out its financial system. The government recouped 1 billion euros in January by selling convertible debt in Bank of Ireland Plc.
Ireland’s government bought Irish Life, the nation’s largest life assurer, with a 33 percent market share, for 1.3 billion euros in June from debt-laden lender Irish Life & Permanent Plc, which was subsequently renamed Permanent TSB Group Holdings Plc.
The Great-West agreement is the “first time during this crisis that a company in which we have invested has been returned fully to private ownership,” Irish Finance Minister Michael Noonan said today in a statement. The accord will lower Ireland’s borrowings below 120 percent of gross domestic product this year, compared with a 121.3 percent target, the government said.
Great-West’s existing Irish subsidiary, Canada Life, has a 5 percent share of the market, according to Peter Routledge, an analyst at National Bank Financial Group in Toronto. Europe accounted for about one-third of Great-West’s revenue last year, according to data compiled by Bloomberg. The insurer also owns Boston-based Putnam Investments.
Great-West’s acquisition “will provide the company with critical scale in the Irish market as well as operational synergies and expense savings,” Fitch Ratings said today in a statement.
Loney told reporters in Dublin he expects 40 million euros of cost cuts, although the firm hasn’t “put a specific number on redundancies.”
Irish Life CEO Kevin Murphy postponed plans to retire at the end of last year amid the revived talks to sell the state-owned insurer.
Great-West rose 2.4 percent to close at C$27.43 in Toronto, the most since July 26. The shares have gained 18 percent in the last 12 months, compared with the 13 percent advance of the 44-company Standard & Poor’s/TSX Financials Index.
The original auction of Irish Life in 2011 also attracted a joint bid from U.S. private-equity firms JC Flowers & Co. and Apollo Global Management LLC and a separate proposal from London-based CVC Capital Partners Ltd., people with knowledge of the talks said at the time.
U.S. insurers Unum Group and Delphi Financial Group Inc. also bid, the people said.
Great-West purchased domestic competitor Canada Life Financial Corp. for C$7.33 billion in 2003, the company’s largest-ever acquisition.