The lucky few

AXA/AMP: Majority shareholders rarely want to pay a premium to buy out their smaller bedfellows. So when AXA, the French insurer, teamed up with Australian wealth manager AMP to offer A$5.34 a share for the stock it didn’t already own in its Asian subsidiary last November, the target’s independent directors were rightly sceptical. Almost a year later, against all odds, they have a good deal.

The journey to AXA and AMP’s new offer has been far from simple. The two won over AXA Asia-Pacific’s directors with a higher bid in December 2009, only for the French company then to back an even better offer from National Australia Bank. When Australia’s competition regulator rejected that deal in September, AXA went back to its original partner.

AXA AP may just be worth the fuss. AMP will take the Australian and New Zealand business, creating an insurer with a fifth of Australia’s total life insurance premiums. That market has clocked up 12 per cent annual growth over the last decade, according to Credit Suisse, and the premium per capita is still roughly half that of France. AXA will gain full ownership of its fast-growing Asian assets, mostly in Hong Kong.

The cash-and-share offer provides less certainty than AXA and NAB’s all-cash blocked bid, also worth A$13.3. However, AXA has managed to square that circle by effectively guaranteeing the value of AMP’s shares. As long as the wealth manager’s stock falls by no more than 15 per cent, AXA will top up the deal with cash.

That could increase AXA’s bill by up to A$1.7 billion, but absent a market slump, it should at least ensure the deal gets done.

So what do minorities get for their patience? First, a bid that is deliverable: the regulator already said it had no objections to the union back in April.

They also get a price almost 20 percent better than AXA’s previous bid with AMP. The new offer is equivalent to 1.6 times AXA AP’s forecast embedded value for 2011.

That is more than 30 percent higher than the valuation at which Asian behemoth AIA listed last month. Rarely has being left empty handed proved so profitable.