Allianz open to ‘merger of equals’, says chief executive
European insurer warns that high valuations are obstacles to transformative deals
The chief executive of Allianz has suggested that he is open to the idea of a “merger of equals” with a large rival but said high stock market valuations and rising acquisition premiums were big obstacles to transformative M&A.
“It is very difficult to justify paying 30 per cent more on a €30bn asset than to pay 30 per cent on a €5bn asset,” Oliver Bäte told the Financial Times, pointing to higher cost and revenue synergies needed to recoup such a mark-up, which could be marred by significant integration risks.
This does not mean that transformative deals are off the agenda, the head of Europe’s largest insurer argued, but he said good targets were hard to find: “We’ve decided that we have not found yet the attractive asset to make us comfortable to plough out a lot of money.”
Mr Bäte has made no secret of his desire to do deals, and in the past has pointed to property and casualty insurance as an area where he would like to expand.
Market rumours have linked Allianz with an offer for its Swiss rival Zurich, which has a market capitalisation of €40bn, compared with Allianz’s €87bn.
Mr Bäte neither confirmed nor denied the bid speculation, pointing to the insurer’s longstanding policy on not commenting on market rumours.
Last year Allianz spent £500m on a 49 per cent stake in UK insurer LV’s general insurance business. Earlier this year it paid €1.9bn to buy out minority investors in Euler Hermes, the Paris-based trade credit insurer.
It has since been linked with other targets in the rapidly consolidating property and casualty insurance sector, where a combination of claims from natural disasters and years of falling prices have left some companies looking for buyers.
Allianz is widely believed to have been one of the seven companies that earlier this year expressed an interest in XL Group, the Bermuda-based insurer. XL was eventually bought by Axa, which offered €12.4bn and will pay a 54 per cent premium on the target’s pre-deal share price.
That deal was poorly received by investors, with Axa shares falling 10 per cent in the aftermath of the announcement.
Mr Bäte said premia seen in recent deals of about 50 per cent on the market price were “rather crazy”, and he stressed the importance of capital discipline.
“When I was on the way into the job, many investors told me that [Allianz was] very well-respected for many things but not for protecting our capital and managing it very carefully,” he said.
Earning more trust among investors in this regard has been a key priority for the chief executive, who has been in charge since 2015. “I don’t want to lose that reputation because of a deal.”
Mr Bäte categorically ruled out hostile takeovers, arguing that within the financial services sector, large transactions could only be successful if they are supported by both sides. “We would never go after anybody against their will; never.”
Mr Bäte suggested that the high stock market valuations and rising takeover premia implied that a merger of equals would be an attractive path to a large, transformative deal.
“However, large companies need to be ready for mergers, and we haven’t found many,” he said, adding that executives were not always driven by what is best for shareholders and companies, but their own jobs. “We are always open for these discussions, and more so than, I think, other institutions.”