Phoenix Group (LON:PHNX) has announced the proposed acquisition of ReAssure Group plc, a leading life insurance closed book consolidator in the United Kingdom.
Acquisition Highlights
· Confirms Phoenix as Europe’s largest life and pensions consolidator.
· Total consideration of £3.2 billion to Swiss Re Group (“Swiss Re”) and MS&AD Insurance Group Holdings, Inc. (“MS&AD”), the shareholders in ReAssure, satisfied through a mixture of cash and shares issued to Swiss Re, part of which will be transferred to MS&AD.
· Acquisition expected to generate additional cash flows(1) of approximately £7.0 billion over time, of which approximately £2.7 billion is expected to be generated between 2020 and 2023 and a further £4.3 billion from 2024 onwards.
· Cost and capital synergies of £800 million expected by leveraging Phoenix’s highly efficient operating model and approach to capital management.
· Acquisition to add £84 billion of assets under administration(2) and approximately 4.1 million policies(3).
· Meets acquisition criteria, enhances all of Phoenix’s key attributes of cash, resilience and growth and supports a proposed 3% increase in the dividend.
Compelling Strategic Rationale and Significant Financial Benefits
· Confirms Phoenix as Europe’s largest life and pensions consolidator: The Acquisition brings additional scale to Phoenix’s Heritage business, creating an enlarged Group with £329 billion of assets under administration(2,4) and 14.1 million policies(3,4), confirming Phoenix’s position as the largest life and pensions consolidator in Europe.
· Additional long-term cash generation supports increased dividend: The Acquisition is expected to generate a total of £7.0 billion of additional aggregate cash flows taking total long-term cash generation(1) of the enlarged Group to £19.0 billion. This additional cash generation supports a proposed 3% increase in the dividend per share, payable from and including the 2020 final dividend.
· Maintains balance sheet strength and resilience: The Group’s estimated Solvency II Surplus as at 30 September 2019 is expected to increase from £3.0 billion(5) to £4.2 billion on a pro-forma basis(6) giving a Shareholder Capital Coverage Ratio(7) of 148%. This will increase by Completion from the delivery of expected synergies and planned hedging actions.
· Significant expected cost and capital synergies: The integration of ReAssure is expected to create synergies net of integration costs of £800 million. These synergies include annual post-tax cost savings of £40 million per annum by 2023, valued at £400 million, and non-recurring capital synergies of £450 million. Post-tax integration costs are estimated at £50 million.
· Attractive transaction pricing: The total consideration payable of £3.2 billion represents 91% of ReAssure’s pro-forma Solvency II Own Funds of £3.5 billion(8) as at 30 September 2019 before cost and capital synergies.
· Efficient financing structure: The total consideration of £3.2 billion will be financed through: (a) a cash consideration of £1.2 billion funded through a combination of debt facilities and own cash resources, and (b) the issuance to Swiss Re of shares in Phoenix with a value of £2.0 billion, part of which will be transferred to MS&AD. The proposed financing structure results in a pro-forma Group Fitch leverage ratio of 30%, within the target range of 25-30%.
· Growth opportunities are enhanced: Phoenix has a range of opportunities for growth including Bulk Purchase Annuities, new Open Business in the UK and Europe and further M&A in the UK, Germany and Ireland. The Acquisition brings increased cash flows, skills and scale which will benefit these growth options and bring further sustainability to Phoenix’s long-term cash generation.
· Clear and transparent transaction governance structure for all strategic shareholders: Following the Acquisition, each of Swiss Re and MS&AD will have strategic shareholdings totalling approximately 28% of the enlarged Phoenix Group. While the total shareholding of Swiss Re and MS&AD will be fixed at approximately 28% of the enlarged Phoenix Group, the anticipated shareholding of Swiss Re will be in the range of 13% to 17% and the anticipated shareholding of MS&AD will be in the range of 11% to 15%, depending on Phoenix’s share price at Completion. Each of Swiss Re and MS&AD will be invited to appoint one Non-Executive Director to the Phoenix Group Board for as long as their respective shareholdings are 10% or more of the share capital of the enlarged Phoenix Group and will otherwise benefit from the same governance rights as Standard Life Aberdeen. On a pro-forma basis, taking into account the shares issued as a part of the transaction, Phoenix’s strategic partner and current largest shareholder, Standard Life Aberdeen, will have an ownership stake of c.14.5% and continue to have the right to appoint one Non-Executive Director to the Phoenix Group Board.
Commenting on the Acquisition, the Group’s CEO, Clive Bannister, said:
“This is a highly attractive acquisition for Phoenix that follows our growth strategy and delivers value to our shareholders. The acquisition will contribute £7 billion of incremental cash generation and give us the opportunity to capture significant cost and capital synergies. The purchase price, at 91% of ReAssure’s pro-forma Solvency II Own Funds, is attractive; as is the efficient financing structure. Together, this enables us to maintain our balance sheet strength.
The deal confirms Phoenix’s position as Europe’s largest life and pensions consolidator with £329 billion of assets under administration and 14.1 million policies and will give us an enhanced platform to pursue further growth opportunities, including Bulk Purchase Annuities. We also welcome Swiss Re and MS&AD as significant new shareholders and see their investment as a recognition of the many benefits that this combination can bring.”
Commenting on the Acquisition, Christian Mumenthaler, Group CEO, Swiss Re said:
“We are pleased to have found a strong buyer for ReAssure Group plc, delivering on our stated objective of deconsolidating this business. Phoenix is a natural acquirer of ReAssure and has a proven track record of delivering value to both shareholders and customers. We look forward to working with Phoenix and supporting them in achieving their vision of being Europe’s Leading Life Consolidator.”
Commenting on the Acquisition, Keith Skeoch, CEO, Standard Life Aberdeen, said:
“Today’s announcement by Phoenix illustrates the substantial consolidation opportunities that exist within the UK and European insurance sectors which was a key factor in our making our strategic investment in Phoenix.
As a leading provider of investment solutions to both Phoenix and ReAssure we will be working with Phoenix to understand the additional opportunities that the proposed acquisition creates for Standard Life Aberdeen.”
Transaction Timetable
Due to its size, the Acquisition is subject to the requirements of a Class 1 transaction, under the Listing Rules, including being conditional upon the approval of Phoenix’s shareholders. The issue of Phoenix’s ordinary shares as consideration (the “Consideration Shares”) will require a prospectus in order to admit the Consideration Shares to the premium listing segment of the Official List. In addition, the Acquisition is subject to the satisfaction of other conditions including receipt of regulatory and anti-trust approvals.
Phoenix currently expects to publish a combined shareholder circular and prospectus (the “Circular and Prospectus”) for the Acquisition in the first quarter of 2020. Completion of the Acquisition is targeted for mid-2020.
Webcast and Conference Call
A presentation for analysts and investors will be held today, 6 December 2019, at 9.30 a.m. (GMT) at Bank of America, 2 King Edward Street, London, EC1A 1HQ, with tea and coffee served from 9.00 a.m.
A link to a live webcast of the presentation, with the facility to raise questions, and a copy of the presentation will be available at www.thephoenixgroup.com/investor-relations.
To register for the live webcast please go to:
https://secure.emincote.com/client/phoenix/phoenix051
To register for the conference call please go to:
https://secure.emincote.com/client/phoenix/phoenix051/vip_connect
A replay of the presentation will also be available through the website.
The person responsible for arranging for the release of this announcement on behalf of Phoenix Group is Gerald Watson.
