Axa Takes The Lead And Others Will Follow

The insurer's huge merger will force rivals to do likewise

He has hunted game in Africa, camped out next to China's Great Wall, and bought up chateaux in Bordeaux. Claude Bebear, chairman of French insurer Axa, has made a career of high-profile experiences. On Nov. 12, he added another to his list. After a weekend of intense negotiations, he announced that Groupe Axa would merge with Union des Assurances de Paris, France's largest insurer. His "deal of the century" will create the world's second largest insurance group after Nippon Life Insurance Co. of Japan.

In pulling off the merger--a share swap that could be worth as much as $10 billion--Bebear instantly positioned Axa as a major new force in an increasingly global insurance and asset-management market. But for starters, he'll have to bring to UAP, whose 5% return on equity is half that of Axa's, the shareholder-value principles he has used for the last 22 years to make Axa a major player in Europe, the U.S., and Asia. A success could be a model for restructuring other insurers and banks. Overstaffed and underperforming, they "will have to start facing their own costs," figures CS First Boston London analyst Kashori Banger.

"NEVER APPROVE." That could mean a wave of consolidation or quick alliances for insurers such as Groupe des Assurances Nationales and Assurances Generales de France. French banks will "have to do something equivalent," says Robert Boublil, an analyst at Paris insurer Wargny Assurances. "Rather than let foreigners gobble them up, they should do it themselves." Indeed, before the Axa deal, UAP itself had been talking with New York-based American International Group Inc., says the insurer's chairman, Maurice R. Greenberg. He says he and UAP Chief Executive Jacques Friedmann discussed a possible strategic alliance and the purchase by AIG of as much as 20% of UAP. Then, on Nov. 11., Friedmann called Greenberg to say he was going with Axa instead. "He said that the French government would never approve of the largest privatized French insurance company being under the influence of a company in America," recalls Greenberg.

Axa and UAP together will become a Euromonster. With 80,000 employees and combined revenues of $60 billion, the merged companies will vault past Germany's Allianz as Europe's biggest insurer. But how successful will Bebear be in exporting Axa's nimble operating style to UAP? Privatized in 1994, UAP had bought its way into its position as Europe's second-largest insurer with costly acquisitions in Germany and Britain. It also stocked up on French real estate that has been languishing for years.

As competition and deregulation in Europe's single market have intensified, Friedmann has found restructuring tough going. Agents have resisted efforts to shrink the organization, and UAP racked up losses of $400 million in 1995 before rebounding to modest profits in this year's first half. Its share price has sunk 23%, to $20, since privatization. Some UAP-watchers are convinced that Bebear hasn't looked deeply into the insurer's books yet. When he does, they say he may find plenty of overvalued assets.

NAILED DOWN. Although the new partners aim to build a management structure for the yet-to-be named group that treats Bebear and Friedmann equally, there's no question that Bebear will be in the driver's seat. It was he who pushed the deal on Friedmann, and the two cobbled it together over the weekend after the markets got wind of the discussions.

Bebear sees huge potential in expanding Axa's product lines in France, Germany, Belgium, and Britain. That looks like a good shot, given his success at managing past mergers. Four years ago he nailed down a major U.S. presence with the purchase of Equitable Cos. Last year he bought 51% of Australia's No.2 life insurer, National Mutual, which also has interests in Hong Kong. All told, Axa earned $542 million last year. Its first-half net this year surged 52%, to $400 million.

Given his record, the market is likely to give him the benefit of the doubt for now. In fact, Bebear is already talking of new challenges in China and in fund management worldwide. He hasn't even started to digest UAP yet, but that doesn't seem to bother him a bit.

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