Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

One tenth of a euro. That sweetener was all it took to persuade Delta Lloyd N.V. to capitulate to a takeover offer from rival Dutch insurer NN Group NV -- a pitch previously described as "substantially undervaluing" the company. It doesn't look like Delta has got the absolute best deal for its shareholders.

NN Group has agreed to pay 5.40 euros a share, or 2.5 billion euros ($2.6 billion), in cash for its domestic peer, versus its opening shot of 5.30 euros per share revealed on Oct. 5. It's a disappointing outcome for months of negotiations.

True, the offer is 591 million euros above Delta's undisturbed value, representing a 31 percent premium. But the Bloomberg 500 insurance index is up about 15 percent in the same period, implying Delta would have got halfway to the takeover price just by riding the market.

Half and Half
Market movements would have probably got Delta Lloyd halfway to NN's takeover offer since October
Source: Bloomberg

For NN it looks like a cracking deal. The duo sees 150 million euros of annual pre-tax cost cuts by 2020. Taxed and conservatively capitalized, these have a net present value of about 1 billion euros. The savings opportunity is likely to be greater based on past insurance M&A. In addition, the enlarged group will have some financial synergies enabling it to hold less capital -- though this will be offset by the need to adopt new actuarial policies.

In justifying its submission to NN at pretty much the bidder's opening gambit, Delta Lloyd boss Hans van der Noordaa says there was some risk that his standalone strategy might fail to deliver the goods. By contrast, the offer provided a certain exit above the current share price. All true. But the volte face is surprising all the same.

No doubt taking the deal is a better option than ploughing on with an uncertain solo strategy. Shareholders will nevertheless wonder why Delta was unable to negotiate a higher premium, perhaps by opportunistically closing a deal when its shares were hovering around 5.60 euros a few weeks ago.

As for NN, it has judged the situation impeccably. It pitched its offer at a price just high enough to deter counterbidders, while allowing plenty of headroom to afford a tiny top-up to seal an agreement. Delta's negotiating hand was weak and it had no viable alternative. Delta says it weighed all the options. That doesn't mean any of them were any good.

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 chughes89@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net