DFG Shareholders Approve Sale - Analyst Blog
15 March 2012 - 3:21AM
Zacks
On Tuesday, Delphi Financial Group Inc. (DFG)
shareholders approved the company’s buyout by Tokio Marine
Holdings Inc. (TKOMY). A total of 86.1% of the
shareholders were voted in support of the merger.
The shareholders also voted to make an amendment to Delphi’s
certificate of incorporation regarding “disparate consideration”
such that the holders of Class B shares receive a higher
compensation than the Class A shareholders.
The Story So Far
The deal was announced in December 2011 when Tokio Marine
expressed its intention to penetrate the U.S life insurance
market. Per the agreement, Class A stockholders will receive
$43.875 per share in cash while the holders of Class B shares will
receive a higher compensation of $52.875 per share. Apart from the
cash payment, the shareholders will also be given a one-time
special dividend of $1 per share.
Earlier, the agreement faced opposition from Delphi shareholders
as it was structured in a way that Class B shares, held by Delphi’s
CEO Robert Rosenkranz, would fetch a higher payout in comparison to
Class A shares. The agreement was tagged as unfair and blocked on
account of the provisions regarding “disparate consideration.”
However, last week the judge rejected investor claims about the
deal being unfair, but ruled in favor of discontented shareholders
receiving monetary compensation for Rosenkranz’s actions.
A major hurdle before the deal has been overcome and the sale is
expected to be completed by the second quarter of 2012, subject to
U.S and Japanese regulatory compliance and the fulfillment of other
customary conditions.
Importance of the Acquisition for Tokio
Marine
According to the Tokio Marine management, the deal will increase
the profit contribution from overseas businesses, from 37% to
46%.
The Japanese insurer is aggressively pursuing diversification of
its business beyond the domestic territory. In the current
scenario, the life insurance market in Japan is not likely to
register strong growth owing to an aging population and a maturing
market.
It is not only the life insurance sector that is subject to such
headwinds, the non-life insurance sector also has its share of
challenges to deal with. With the aging of the Japanese population,
the number of vehicles insured and other factors that drive motor
insurance, a mainstay product (of non-life insurance sector), are
likely to decrease.
Moreover, non-life insurance industry is subject to a number of
issues and changes in the economic environment, such as the
financial crisis of 2008, and a maturing non-life insurance
market.
Natural calamities such as the East Japan earthquake in 2011,
which caused unprecedented damage, further added to the list. In
this situation, penetrating overseas markets is a key to growth,
primarily for large companies. This is attested by a series of
alliances and mergers that have taken place in the industry since
2000.
On the other end of the spectrum, Tokio Marine will benefit from
a large U.S. insurance market, which is pegged at about 89 trillion
yen by Bloomberg. Also, given the mature non-life insurance
market in Japan, companies in the sector have been expanding their
overseas businesses, especially in emerging Asian markets where
growth rates are remarkably high.
Tokio Marine has been on an international
expansion spree recently. The deals inked include an agreement for
a joint venture life and non-life insurance company in Saudi
Arabia, setting up of the Canton branch of its Chinese subsidiary,
opening an office in Cairo and getting an approval for the
establishment of the Jiangsu branch of its Chinese
subsidiary.
DELPHI FINL GRP (DFG): Free Stock Analysis Report
TOKIO MARINE HL (TKOMY): Free Stock Analysis Report
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