Gallagher to Sell Shares to Fund Wesfarmers DealNarayanan Somasundaram and Zachary Tracer
Arthur J. Gallagher & Co. is selling 19 million shares of common stock to help fund the purchase of Wesfarmers Ltd.’s insurance brokering operation, as the buyer extends its growth outside the U.S.
The offering would raise $890 million, based on the April 4 closing price of $46.84 for Gallagher. Morgan Stanley and Bank of America Corp. are leading the offering, Itasca, Illinois-based Gallagher said today in a statement.
Wesfarmers, which operates supermarkets and sells coal, chemicals and industrial equipment, said Gallagher agreed to buy its brokerage operations for A$1.01 billion ($935 million) as the Perth, Australia-based company scales back from insurance. Gallagher has been expanding in countries including the U.K. to add clients and increase business with U.S. customers that operate internationally.
“This acquisition represents an important strategic step for our company,” Chief Executive Officer J. Patrick Gallagher, Jr. said in a statement. “Our combined operations will become one of the largest insurance brokers in Australia and New Zealand.”
Gallagher, which raised funds in June for acquisitions, announced an agreement in September to buy the Giles Group of Companies for 237 million pounds ($393 million) to expand in the U.K. The share sale announced today includes an option for the underwriters to purchase an additional 2.85 million shares within 30 days.
About 23 percent of Gallagher’s revenue came from outside the U.S. last year, up from 11 percent in 2009, according to the firm’s annual regulatory filings. It competes with Marsh & McLennan Cos. and Aon Plc, which are the largest brokers.
Wesfarmers expects pretax profit of A$310 million to A$335 million on the sale, according to its statement. The broking businesses include OAMPS Insurance Brokers Ltd. in Australia, OAMPS (UK) Ltd. and Crombie Lockwood Ltd. in New Zealand.
Wesfarmers, which agreed to sell its insurance underwriting business to Insurance Australia Group Ltd. for A$1.85 billion on Dec. 16., has been shifting spending to its Coles supermarket chain it bought in 2007 in Australia’s largest corporate takeover.
“The insurance broking business was small in the scheme of things for Wesfarmers and was more of a management distraction than a value add,” Scott Marshall, a Sydney-based analyst at Shaw Stockbroking Ltd., said by phone. “The easy picking from Coles have been made and while it’ll be a grind going ahead for the business there is still significant upside that can be extracted.”
He raised the rating on Wesfarmers’s stock to hold from sell today. Wesfarmers closed 1.2 percent higher at A$42.08 in Sydney compared with a 0.2 percent drop in the benchmark S&P/ASX 200 Index. Gallagher dropped 2.8 percent to $45.55 at 10 a.m in New York.
Wesfarmers, which started in 1914 as a farmers’ co-operative, is scouring for acquisitions as it looks to invest surplus funds rather than return them to shareholders, Ian McLeod, managing director of Coles, said in an interview on April 2. McLeod will be assessing takeover targets in a new role from June. Wesfarmers has as much as A$5 billion of cash and debt that can be used for takeovers, according to Bank of America’s Merrill Lynch unit.
The latest transaction also includes the sale of premium funding operations in Australia and New Zealand, which include the brands Lumley Finance and Monument Premium Funding. The sale is subject to regulatory approvals, the Australian firm said.