May 31, 2011, 6:06 PM EDT
By Sean B. Pasternak
(Updates with analyst’s comment in the fourth paragraph, financing details in fifth.)
May 31 (Bloomberg) — Intact Financial Corp., Canada’s largest property and casualty insurer, will buy Axa SA’s Canadian business for C$2.6 billion ($2.7 billion) to increase its premiums in the country by almost 50 percent.
The cash purchase will generate an internal rate of return of 20 percent and increase annual operating earnings per share by 15 percent in the “mid-term,” Toronto-based Intact said today in a statement.
The takeover, the largest by a Canadian property insurer, will increase Intact’s premiums by C$2 billion, to more than C$6.5 billion, and save at least C$100 million a year, according to the statement. The purchase is the first by Intact, the former Canadian insurance unit of ING Groep NV, since its 2006 acquisition of Grey Power Insurance Brokers Inc.
“This is by far the biggest splash they’ve ever made,” said Craig Fehr, an analyst at Edward Jones Co. in St. Louis. Until today, Intact has “done some small deals” and “tacked things on and built out a little bit.”
Intact will finance the purchase with C$500 million of excess capital, issue C$800 million of stock and access C$1.3 billion of credit facilities, the company said.
The Canadian unit of Paris-based Axa SA sells home, auto and business coverage and is the sixth-largest insurer in the country.
Axa will record an exceptional capital gain of about 900 million euros ($1.3 billion) on the sale, which will be accounted for in net income, the company said in a separate statement.
CIBC World Markets advised Intact on the sale.
Intact fell 40 cents to C$49.77 before trading was halted at 3:23 p.m. on the Toronto Stock Exchange.
–With assistance from Doug Alexander in Toronto. Editors: David Scanlan, Peter Eichenbaum
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