Promina to buy Suncorp for $6 bn
Australian insurer Promina Group agreed to a A$7.6-billion ($5.8 billion) takeover by banking and insurance group Suncorp-Metway that will create the country’s second-largest home and car insurer. Some investors gave the acquisition thumbs down.
“The detail around how Suncorp turns this into a value-enhancing deal for the merged entity is not really sufficient,” said Andrew Waddington, analyst at fund manager BT Financial Group.
“The return on capital for Suncorp for this deal is very dilutive and we think it will take longer to generate sufficient return on capital than we think Suncorp does. Suncorp reckons it will take two years — that is too optimistic,” he said.
Promina’s shares rose 2.1% to A$6.93, below an implied an offer price of A$7.43 a share. The deal is not expected to close until March 2007, and some investors worried Australia’s antitrust watchdog might block it on concern about the combined group’s share of the motor insurance market.
“One of the key potential stumbling blocks to this transaction going ahead will be ACCC approval,” said Arjan Van Veen, analyst at Credit Suisse. Suncorp said it had not yet held detailed talks with the Australian Competition and Consumer Commission (ACCC).
The merged group would have around a 40% share of Australia’s motor insurance market and around 35% of the home insurance market, according to two analysts’ estimates. That would put it just behind Insurance Australia Group, the market leader in both lines of insurance, which trades at 14.9 times forecast 2007 earning.
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