27th May 2016 13:43
LONDON (Alliance News) - Phoenix Group Holdings, the FTSE 250 manager of life and pension funds closed to new customers, on Friday said it agreed to buy French insurer AXA Group's UK pensions and investments business and its protection business, in a move to generate additional cash to help increase dividend payments to shareholders in 2016.
In a statement, Phoenix said it will pay GBP375 million in cash for the Embassy pensions and investments business together with protection company SunLife, with the deal to bring GBP12.3 billion of assets under management and over 910,000 policies to the London-listed company.
The acquisition is expected to generate cash flows of about GBP300 million between 2016 and 2020 and GBP200 million from 2021 onwards, and will support a proposed increase in the total dividend for 2016. Phoenix wants to increase the payment to shareholders to 56.0 pence from 53.4p.
Phoenix is financing the acquisition by raising about GBP193.9 million in a placing, later in the day confirming that 22.5 million shares were sold at 860.00 pence per share. The placing equated to just shy of 10% of the company's existing shares. HSBC and JPMorgan Cazenove are the joint bookrunners and underwriters on the share placing.
Shares in Phoenix were up 3.5% at 879.50p Friday afternoon in London. The shares were placed at a premium of about 1.24% to the closing price on Thursday.
Debt funding from a consortium of banks will provide the remaining finance, and Phoenix expects the debt facility to be repaid from cash flow within six months from completion. According to presentation slides on Phoenix's website, debt funding will total about GBP185 million, with the final amount requirement to be influenced by how much is raised in the equity placing.
"The group has extensive integration experience and expertise and we believe that both the Embassy and SunLife businesses are a strong fit, benefiting both shareholders and policyholders alike. We will invest heavily to ensure a smooth transition of the two businesses from AXA to Phoenix and we are committed to delivering the highest level of service to both direct and IFA customers, as we do for our existing customers," Clive Bannister, chief executive officer of Phoenix, said in a statement.
Phoenix expects to benefit from net capital synergies of about GBP250 million within six months of completion, inclusive of the impact of cost synergies of GBP10 million per annum, thanks to the diversifying benefits of the deal. Specifically, the mortality exposure of the SunLife business offsets Phoenix's existing longevity exposure from its annuity liabilities.
Annuities, under which Phoenix provides income to people in retirement, give rise to so-called longevity exposure, the risk that people live longer than expected. Mortality exposure is the opposite sort of insurance risk, namely the potential for higher-than-expected death claims.
On the basis of Solvency II European rules, Phoenix expects its surplus to improve to GBP1.4 billion as a result of the acquisition. Phoenix reported a GBP1.3 billion surplus over Solvency Capital Requirements at the end of 2015.
There could be further M&A activity down the line for Phoenix. "Looking ahead, we believe there will be further consolidation in the UK life industry and we will continue to explore further opportunities as they arise," Bannister said.
Phoenix wants acquisitions that have a UK closed life focus, are value accretive, supportive of its dividend aspirations and investment grade credit rating.
By Samuel Agini; [email protected]; @samuelagini
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