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NN Group bid leaves Delta Lloyd investors facing big decision

NN Group NV's €2.5 billion offer for Delta Lloyd NV — a shade above its earlier, rejected €2.4 billion offer leaves the target company's investors with a big decision over whether to accept it, analysts told S&P Global Market Intelligence.

Delta Lloyd's board backs the latest €5.40-per-share offer, which represents a 31% premium over the closing price of €4.12 per share Oct. 4 and a 55% premium over the three-month average closing price prior to NN Group's earlier bid Oct. 5. NN Group said it will fund the bid with cash and debt.

"After due and careful consideration, both the Delta Lloyd executive board and the supervisory board are of the opinion that the offer is in the best interest of Delta Lloyd and its stakeholders," the companies said in their joint Dec. 23 statement.

But, given that Delta Lloyd's management had earlier said the €2.4 billion offer "substantially" undervalued the company and that accepting a €2.5 billion offer would force some of its shareholders to incur big losses, Delta Lloyd's management cannot bank on shareholder approval for the deal, CreditSights analysts Raymond Tam and Philippe Picagne wrote in a Dec. 27 note.

"We are still not convinced the merger will take place considering that several significant investors will need to realize losses on their investments from accepting the all-cash offer," they wrote. "There is still a possibility that the offer will not reach the 67% threshold required."

Tam and Picagne said that if the deal goes ahead, NN Group will have "scored a bargain."

Great opportunity

But other analysts told S&P Global Market Intelligence that Delta Lloyd's shareholders should jump at the opportunity, particularly given the apparent lack of interest from alternative buyers.

One Dutch insurance analyst, who spoke on condition of anonymity because he was not allowed to speak to media, said he believes €2.5 billion is a "very fair price" for Delta Lloyd.

"There were no other buyers and [the offer is] at a significant premium to where Delta Lloyd was trading pre-bid," he said. "Delta Group shareholders should be very pleased with what they're getting now. I don't believe they will turn down the deal because they know that the moment they turn down the deal the share price will drop."

Bart Jooris, an analyst with Degroof Petercam, told S&P Global Market Intelligence that he also expects Delta Lloyd's shareholders to accept the €5.40-per-share offer.

"It's difficult for Delta Lloyd to bring [the share price] to this level in a reasonably short amount of time [if they turn down the merger]," he said. "Moreover, Delta Lloyd management seems to have looked for a white knight and has not found it. It's difficult to see a counter-offer coming from someone else."

He added, however, that NN Group's offer "is not super-generous," based on the valuations of Delta Lloyd's peers.

A commanding position in Dutch life

Analysts agree that the deal would give NN Group a commanding position in Dutch life insurance in particular.

"For €2.5 billion, NN [will have] doubled the size of its life business, and the combined insurer will be a market leader in the Dutch pension market, with key market positions in several business segments in nonlife [insurance]," Picagne and Tam wrote.

Some analysts privately say that the deal would raise questions about levels of competition in the Dutch life market. Yet, the Dutch regulator is thought to have already given an implicit nod of approval to the merger.

In a report on the Dutch insurance sector published Dec. 13, De Nederlandsche Bank NV said Dutch insurers need to make "extra efforts to respond to the sweeping changes to their markets" over the next few years. Low interest rates, technological advances and "fierce competition" in the nonlife insurance market in particular mean that insurers need to accelerate their efforts to adapt, it added.

"We would ... encourage specific insurers to launch cross-border operations in order to diversify and create critical mass," the central bank said.