Axa chief defends controversial XL Group deal
Thomas Buberl vows to convince investors over €12.4bn acquisition
The chief executive of French insurer Axa has admitted that it may take more than a year to convince investors that his €12.4bn acquisition of Bermuda’s XL Group is a positive move.
Thomas Buberl told the Financial Times that he understood investors’ concerns about what he described as a “strategic decision”.
When the French insurer announced the deal earlier this month its share price fell by a tenth, wiping almost €6bn off its market capitalisation. Its share price has struggled to recover since.
James Shuck, analyst at Citi, said the deal “looks expensive, increases earnings volatility, . . . raises financial risk and undermines management credibility”.
Some investors had expected the company to use the capital generated by the planned listing of its US business to fund small acquisitions of €1bn-€3bn and share buybacks, rather than to do big deals.
Mr Buberl said: “I understand the disappointment of investors from two perspectives. Despite the fact that I have always positioned share buybacks as the last option, a lot of investors thought [there would be] share buybacks.”
He added: “On the deal size we did indicate that we were looking at smaller deals and when we indicated that . . . we clearly did not have XL in mind. It was a year or more ago. But when your ideal hits the reality, you sometimes have to take a strategic decision.”
Mr Buberl said he would eventually convince investors that the deal was worthwhile: “Talking people around is difficult. You need to prove people around. It’s probably 12-18 months . . . When we spoke about this deal, it was clear that the market would not react positively.”
Mr Shuck said the deal was “such a significant turnaround in previous communication that we think it will take a long time to rebuild trust”.
However, Mr Buberl said the acquisition — one of half a dozen that was under consideration — was in line with Axa’s strategy to expand its property and casualty insurance business, and was not expensive when compared with the valuations of rival companies.
XL boosts Axa’s presence in commercial insurance, especially in the US, and in reinsurance. Those strengths are particularly important for Mr Buberl, who sees a big change coming in the way insurance works.
“Many risks will move from an individual, frequency-based risk to a commercial, more severity-based risk,” he said. “Take autonomous vehicles. Today, a car [insurance] contract is your personal contract . . . Tomorrow, it will be a manufacturer’s product liability, maybe focused on cyber risks.”
Analysts have cautioned of pressure on the group to complete the US initial public offering and other disposals in order to push through the deal without drawing down a €9bn bridging loan.
“The fact that Axa has committed funds from the IPO to the acquisition of XL may put pressure on price levels the group will be able to achieve in the IPO,” said analysts at Keefe, Bruyette & Woods.
“It is at least conceivable that Axa will need to re-think the IPO if price levels drop to economically untenable levels, and be forced to draw down portions of the bridging loan,” added the analysts, who suggested the insurer’s share price could fall further if such risks were realised.
Mr Buberl emphasised that, although he plans to use proceeds from the US listing to fund the XL acquisition, the two transactions are completely separate. If the IPO were to hit a snag Axa would fund the XL deal in other ways, without resorting to a capital increase, he said.
“I can sell companies, it is in my control whether I sell four companies this year or one,” he said. “I can decide how I run a life business, with more or with less capital. There are degrees of freedom that investors or analysts might not see.”