On Monday, shares in Australian insurer QBE rose more than 5 percent to $12.97 Australian dollars before closing unchanged. The brief rise followed a Handelsblatt report that German insurance giant Allianz was in informal talks with QBE about a possible acquisition.
QBE chief John Neal reacted less enthusiastically than shareholders to a possible deal — though that may be a tactical move.
“QBE has a clearly articulated strategy that builds upon our differentiated position as one of only a handful of truly global insurers,” a spokesman for the Australian company said. “Participation in industry consolidation is not a part of this strategy, and there is no basis to speculation either that this strategy is under review or that QBE has received a corporate proposal.”
Allianz has continued to decline to comment on the talks.
Sources close to QBE said the company would at least consider an offer from Allianz, who isn’t the only interested suitor. QBE is also looking at other offers and has held talks with China Life Insurance and the French insurer AXA, currently the world leader.
According to Handelsblatt’s sources, Allianz Chief Executive Oliver Bäte had an in-depth discussion with his counterpart at QBE, John Neal, sometime before Christmas.
Mr. Bäte is alleged to have floated an offer of 15 Australian dollars per share to acquire QBE, which would be a 20-percent premium. The transaction would total 20 billion Australian dollars or around €14 billion.
Sources have said that while the conversation between the two executives was friendly, there was a long way to go before a concrete deal could be hammered out. Mr. Bäte has ruled out a hostile takeover.
If the transaction goes through, it would make Allianz the largest insurer in the world by total assets. With annual revenue of just under €12 billion, QBE is one of the top 20 insurers worldwide and is particularly strong in Australia, New Zealand and the Asia-Pacific region.
In the past, Allianz's Mr. Bäte has spoken enthusiastically and at length about the Australian insurance market in conversations with investors. Australian insurers are highly valued in terms of their earnings and QBE’s stock has risen by a third since November.
Financial sources said Mr. Bäte has recruited Morgan Stanley to advise on the possible deal, while QBE is working with Goldman Sachs.
Allianz could easily afford the acquisition. Analysts estimate it has some €9 billion in its war chest without having to tap shareholders for cash.
According to Jan van der Schalk, an analyst at CLSA in Sydney, QBE would be a major investment, but an achievable one.
Investors are eagerly awaiting QBE's presentation of its 2016 results on February 27.
Hadley Cohen, an analyst at Deutsche Bank, said Allianz could even afford a bigger acquisition without endangering its planned share buyback program. In a research note released last week, Mr. Cohen kept his buy recommendation for Allianz and said he had played through a number of possible scenarios of Allianz making one or multiple acquisitions outside of Italy and Germany, as well as in France and Central and Eastern Europe. For Mr. Cohen, much depended on the price, but even with an acquisition there was potential for a share buyback soon. Allianz has said it could return €2.5 billion euros from its acquisition budget to shareholders in the form of share buybacks.
Investors are eagerly awaiting QBE's presentation of its 2016 results on February 27. The Australian insurer's 2015 profit fell 7 percent to $687 million U.S. dollars. It cut its outlook last summer, revising its full-year 2016 target for gross written premium income to $13.7 - 14.1 billion, down from a previous forecast of $14.2 - 14.6 billion.
Mr. Neal has since sold off some businesses to get QBE back on track.
Carsten Herz leads Handelsblatt’s asset management and insurance coverage and is based in Frankfurt. Christian Schnell covers the auto industry in Germany. Robert Landgraf is Handelsblatt’s chief correspondent for the financial markets. Urs Wälterlin covers Australia, New Zealand, Oceania and Southeast Asia for Handelsblatt.