By Sudip Kar-Gupta
PARIS (Reuters) - AXA (PA:AXAF), Europe's second-biggest insurer, has agreed to buy Bermuda-based XL Group (N:XL) for around $15 billion (11 billion pounds), in a deal which AXA said would create a world leader in property and casualty insurance.
The French insurer said it was offering $57.60 for each XL share, representing a premium of 33 percent to XL's closing share price on March 2. The total consideration for the deal would amount to $15.3 billion.
Insurers around the world have started to strike up takeover deals in order to strengthen their businesses as they face tougher regulation and falling returns based on financial markets investments.
AXA’s takeover of XL comes just over a month after rival American International Group (N:AIG) said it would buy reinsurer Validus (N:VR) for around $5.6 billion. AXA Chief Executive Thomas Buberl said the deal will enable AXA, predominantly a life and savings insurer, to dominate the global property and casualty market.
"The transaction offers significant long-term value creation for our stakeholders with increased risk diversification, higher cash remittance potential and reinforced growth prospects," Buberl said.
"The future AXA will see its profile significantly rebalanced towards insurance risks and away from financial risks," he added.
However, AXA shares fell 5 percent in early trading, as some analysts said the XL deal looked pricey.
"In our view, the acquisition of XL fits AXA's strategy of growing in commercial insurance. However, the purchase price looks quite high even after synergy effects and AXA's debt ratio is again rather stretched," said analysts at German brokerage Bankhaus Lampe, who kept a "hold" rating on AXA shares.
AXA, which ranks as Europe's second-biggest insurer in terms of market capitalisation behind Germany's Allianz (DE:ALVG), said it would finance the XL deal via debt, cash and the proceeds of the forthcoming flotation of its U.S. business.
It added it expected the XL takeover to be cash accretive, and to result in cost synergies of around $400 million per year, based on pre-tax earnings.
AXA also reaffirmed its 2020 financial targets, under which the French insurer aims to increase earnings per share by 3 to 7 percent a year over the 2016-2020 period.
AXA has not been hit as hard as some of its rivals by a series of costly natural catastrophes in 2017, thanks to reinsurance contracts and its diversified business model.
AXA reported higher than expected net 2017 profit of 6.2 billion euros last month.
Law firm Skadden said it was advising XL over the AXA takeover.