The CEO of the biggest insurance company in Europe is in a big deal. Allianz SE does not want to pay for it. Oliver Baetete will find it difficult to get the cake and eat it.
He has been at work for three years and things are going well for him: Allianz thinks he has a lot of capital and that his stocks perform better than his peers despite a recent boom. However, Europe’s insurance market is only slowly growing and the group is willing to revive the general insurance business, which has less capital intensity than life and savings. A deal is made to work Allianz’s surplus money, save money and reshape the group.
We have a long list of potential targets, including Bavel, Zurich Insurance AG, Aviva Plc and RSA Insurance Group Plc, announced last week.
A small deal would not make much difference for Allianz, which has a market value of 76 billion euros ($ 87 billion). But big deals mean big premiums. A standard recovery of 30 per cent in the acquisition of 5 billion euros will cost 1.5 billion euros. The size of Zurich would be equivalent to 13 billion euros for a company. AXA SA, XL Group Ltd. in March. and 57% of its shareholders, and the shareholders are very lively.
Face-to-face with this dilemma, Baete recently unveiled the idea of a merger in an interview with the Financial Times. However, this requires a goal that is willing to play the small partner and accepts a combination of non-premium market dominant values.
There would be a definite synergy – a capital benefit that increased cost diversification and diversification by cutting out duplicate functions. The scale is also advantageous at a time when the industry spends technology like car sensors and brokering applications. Even better, they claim that the two companies share more of the investment burden than on the same projects.
Resisting this is higher than the average deterioration of financial services agreements. Pigeons may have to impose their contracts to narrow their deals and benefits. Defending that the Chinese bogey is a “European champion”, at least not yet. AXA and Allianz are not facing the same competitive pressures as Alstom SA and Siemens AG.
For these reasons, the targets will require a good premium and will be cautious about paying buyers like Allianz. The Zurich administration has argued that the digitalization of the insurance does not mean an absolute dimension anymore, although it is locally assisted by the scale. An agreement dilutes Swiss identity and makes it a politically difficult sale.
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Aviva’s market value of £ 20 billion ($ 27 billion) means acquisition bonuses will be cost-effective. What’s more, the company is inexpensive and trades only nine times the estimated earnings of next year. But as long as Allianz can not find a professional life-saving company that is willing to take it out, he would not do much to move Allianz away from his life and pensions.
RSA, 6.8 billion liras, no life activity, but the shares are already being prepared as a takeover premium. Allianz would still have to pay more.
Baete can not rewrite M & A rules. If you want a deal and you do not have a target, a proper takeover will shake the premium. This applies to large and small transactions. Otherwise, it could get worse than raising Allianz by increasing its appraisal and allowing shareholders to find a use for plus capital
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