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Japan Post-Aflac deal would shore up sales relationship, open path for growth


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Japan Post-Aflac deal would shore up sales relationship, open path for growth

An investment deal that would see Japan's postal service and insurance conglomerate buy a minority stake in Aflac Inc. would be a symbolic gesture pointing toward a more stable partnership with growth potential for both sides.

Analysts who cover Aflac view the sales agreement under which the insurer serves as Japan Post Holdings Co. Ltd.'s sole provider of cancer insurance as lucrative. But if Japan Post buys an 8% equity stake, which Tokyo's The Nikkei reported could rise to 20%, it would formalize Aflac's partnership with a major distributor in a country that accounts for more than two-thirds of its revenues, according to CFRA analyst Cathy Seifert.

The deal would also support Aflac's stock as the Georgia-based company will have a long-term investor that owns a significant block of its equity. Other than that, it is difficult to see what would change for Aflac's operations immediately, Seifert said in an interview.

"The natural question for investors is, they are so dominant in Japan, where do they go from there," said Seifert. The deal could face regulatory turbulence in Washington, but it will likely eventually be cleared, she added.

Credit Suisse analyst John Nadel had been anticipating that Japan Post would eventually expand its distribution agreement with Aflac for products beyond cancer insurance.

"Perhaps taking a minority equity stake in Aflac would make that a far more likely outcome," Nadel said in a Dec. 14 research note. The Nikkei reported that the two sides are discussing a possible expansion of product lines as part of the deal.

The share arrangement would make a full acquisition of Aflac by Japan Post unlikely, according to Keefe Bruyette & Woods analyst Ryan Krueger. A partnership in which the two companies developed new noncancer insurance products in medicine, income protection and others would give Aflac some business upside in Japan, Krueger said.

The Aflac ownership stake would offer Japan Post an expansion of its U.S. dollar investments, which is one of the lures for other Japanese acquirers of U.S. insurers, Janney analyst Larry Greenberg wrote in a note to clients.

"Japan Post knows [Aflac] well through current distribution relationships, and would be investing in a company with a conservative business model that generates strong cash flows and provides an attractive and growing dividend," he said.