Delta Lloyd has all but admitted that its fate is to be taken over.
The Dutch insurer is battling a hostile 2.45 billion-euro ($2.8 billion) bid proposed by rival NN Group. It's not arguing against the principle of a deal; it simply wants more money and is hinting at alternative tie-ups.
Shares in Delta Lloyd are hovering just above NN's 5.30 euros-a-share offer, implying investors see only a small prospect of an bidding war that would force NN to offer more.
Delta isn't an obvious trophy asset that would tempt an overseas bidder. But the domestic industry needs consolidation. Deals driven by cost savings should be high on bosses' agenda given a shortage of organic growth and a painful financial environment caused by low interest rates.
It's easy to see what NN would get out of buying Delta: the target's operating costs are likely to be 610 million euros this year and the buyer might be able to rip out a quarter of those, analysts at Exane estimate.
That could be conservative, given the scope to eliminate duplicated investments in new technology. Suppose it can extract 200 million euros in cost cuts and reductions in capital expenditure. Taxed and capitalized, these alone are worth at least 1.5 billion euros.
In addition, the combined group might reap some financial synergies if NN can refinance Delta's debt and the pro-forma capital requirement falls.
Given that potential value creation, NN is some way from its pain barrier right now.
Its 2.45 billion-euro offer is only 545 million euros more than Delta's undisturbed value, although that rises to 840 million euros if you use Delta's three-month average share price as a reference. This explains why NN's shares quickly got over their initial shock and are up 3 percent since its takeover ambitions became public.
The challenge for Delta is how exactly to force NN to pay more.
It's hard to see its shares getting to the current offer price in the near future under a standalone strategy. That makes it hard for CEO Hans van der Noordaa to appeal to shareholders to choose a solo future over a hostile bid.
He needs to get an auction going quick -- or hope shareholders will simply refuse to sell.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Chris Hughes in London at firstname.lastname@example.org
To contact the editor responsible for this story:
Edward Evans at email@example.com