Japanese insurer Dai-ichi Life Co <8750.T> is in advanced talks to buy U.S. peer Protective Life Corp in a deal that could be worth over $5 billion, extending a drive to buy assets abroad as an antidote to a weak domestic outlook.
The deal would be the biggest so far in a string of overseas acquisitions by Japan's insurers. They're snapping up businesses in markets from the United States to Southeast Asia as a path to future growth while the rapid ageing and eventual shrinkage of Japan's population clouds long-term earnings prospects at home.
Dai-ichi Life, Japan's second-largest private-sector life insurer, plans to buy 100 percent of Protective Life, said a source with direct knowledge of the matter. The 107-year-old U.S. company, based in Birmingham, Alabama, has a market capitalisation of $4 billion and posted a net profit of $393.5 million in 2013 from operations that span the country.
"For top (Japanese) insurers with large market share like Dai-ichi Life, it would be very difficult to secure growth when the overall domestic life insurance market starts shrinking," said Teruki Morinaga, insurance sector analyst at Fitch Ratings in Tokyo. "So, it has to go overseas," he said, adding he was commenting based on media reports and hadn't independently verified their accuracy.
In a statement to the Tokyo Stock Exchange, Dai-ichi Life said, "It is true that we are considering an acquisition of a U.S. life insurance company. But nothing has been decided." A spokesman declined to comment further.
Eva Robertson, vice-president of investor relations at Protective Life, said in an email to Reuters that the company declined to comment, citing company policy on media reports.
The source, who was not authorised to discuss the matter, said Dai-ichi Life, worth close to $15 billion by market value, is planning to fund half of the acquisition cost from existing reserves if the deal goes through. The remainder would be sought externally, the source said, including a possible share issue, along with loans.
As investors fretted over the potential for a dilutive impact on their holdings from a deal, Dai-ichi Life's shares sank 5 percent by the close in Tokyo in heavy trading, compared with a gain of 2.1 percent gain in the broader market. In a separate statement, the company confirmed it is considering fund-raising options including the issue of new shares.
"The acquisition itself is positive for the company in the long term, but the market is wondering how the company will finance it," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. "Dilution fears from a possible share offering plan hit investor sentiment."
POPULATION RISK
Japan is the world's second-largest life insurance market after the United States by premium revenue. For now players enjoy relatively stable income, but the ageing, and ultimately dwindling population represents a risk for insurers - and many companies whose business model is based on selling goods and services in the country.
From a peak of about 128 million in recent years, Japan's population is forecast to fall 14 percent to close to 110 million by 2035.
Japanese companies are accelerating overseas acquisitions as one strategy for shoring up earnings. So far this year, they have spent $27 billion on mergers and acquisitions outside Japan, up from $10.4 billion during the same period a year ago, Thomson Reuters data shows.
Source: Reuters
The deal would be the biggest so far in a string of overseas acquisitions by Japan's insurers. They're snapping up businesses in markets from the United States to Southeast Asia as a path to future growth while the rapid ageing and eventual shrinkage of Japan's population clouds long-term earnings prospects at home.
Dai-ichi Life, Japan's second-largest private-sector life insurer, plans to buy 100 percent of Protective Life, said a source with direct knowledge of the matter. The 107-year-old U.S. company, based in Birmingham, Alabama, has a market capitalisation of $4 billion and posted a net profit of $393.5 million in 2013 from operations that span the country.
"For top (Japanese) insurers with large market share like Dai-ichi Life, it would be very difficult to secure growth when the overall domestic life insurance market starts shrinking," said Teruki Morinaga, insurance sector analyst at Fitch Ratings in Tokyo. "So, it has to go overseas," he said, adding he was commenting based on media reports and hadn't independently verified their accuracy.
In a statement to the Tokyo Stock Exchange, Dai-ichi Life said, "It is true that we are considering an acquisition of a U.S. life insurance company. But nothing has been decided." A spokesman declined to comment further.
Eva Robertson, vice-president of investor relations at Protective Life, said in an email to Reuters that the company declined to comment, citing company policy on media reports.
The source, who was not authorised to discuss the matter, said Dai-ichi Life, worth close to $15 billion by market value, is planning to fund half of the acquisition cost from existing reserves if the deal goes through. The remainder would be sought externally, the source said, including a possible share issue, along with loans.
As investors fretted over the potential for a dilutive impact on their holdings from a deal, Dai-ichi Life's shares sank 5 percent by the close in Tokyo in heavy trading, compared with a gain of 2.1 percent gain in the broader market. In a separate statement, the company confirmed it is considering fund-raising options including the issue of new shares.
"The acquisition itself is positive for the company in the long term, but the market is wondering how the company will finance it," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. "Dilution fears from a possible share offering plan hit investor sentiment."
POPULATION RISK
Japan is the world's second-largest life insurance market after the United States by premium revenue. For now players enjoy relatively stable income, but the ageing, and ultimately dwindling population represents a risk for insurers - and many companies whose business model is based on selling goods and services in the country.
From a peak of about 128 million in recent years, Japan's population is forecast to fall 14 percent to close to 110 million by 2035.
Japanese companies are accelerating overseas acquisitions as one strategy for shoring up earnings. So far this year, they have spent $27 billion on mergers and acquisitions outside Japan, up from $10.4 billion during the same period a year ago, Thomson Reuters data shows.
