Swiss Re AG agreed to sell ReAssure Group PLC to Phoenix Group Holdings PLC in a deal that values the U.K. subsidiary at £3.25 billion.
Swiss Re will receive a cash payment of £1.2 billion as well as shares in Phoenix representing a 13% to 17% stake, and will be entitled to a seat on its board of directors. MS&AD Insurance Group Holdings Inc., ReAssure's minority shareholder, will receive shares in Phoenix representing an 11% to 15% stake.
The respective number of shares Swiss Re and MS&AD receive will depend on Phoenix's share price at closing of the sale, while the total shareholding of both companies is fixed at approximately 28%.
The financial impact of the transaction on Swiss Re will be subject to movements in Phoenix's share price prior to closing of the sale. It is estimated that the transaction will result in a 12-percentage-point increase in Swiss Re's group Swiss Solvency Test ratio and generate a profit of $300 million. An estimated U.S. GAAP pre-tax charge of about $300 million in the fourth quarter mainly reflects the higher consolidated book value of ReAssure, driven by historically low interest rates, Swiss Re noted.
The impact of the reacquisition of shares from MS&AD will be reflected in the group's shareholders' equity.
In connection with the transaction, Swiss Re Ltd. expects to issue a guarantee in favor of the holders of the €750 million of 1.375% notes due 2023 of Swiss Re-Finance Jersey, formerly Swiss Re ReAssure Ltd., which will remain a wholly-owned subsidiary of Swiss Re.
Impact on Phoenix
In a separate statement, Phoenix said it expects the acquisition to generate additional cash flows of approximately £7.0 billion over time, of which roughly £2.7 billion is expected to be generated between 2020 and 2023 and a further £4.3 billion from 2024 onward.
This would take total long-term cash generation of the enlarged group to £19.0 billion and supports a proposed 3% hike in its dividend per share, payable from and including the 2020 final dividend. As a result, its annualized dividend per share will increase to 48.2 pence from 46.8 pence.
It also anticipates cost and capital synergies of £800 million. These synergies include annual post-tax cost savings of £40 million per year by 2023, valued at £400 million, and non-recurring capital synergies of £450 million. Post-tax integration costs are estimated at £50 million.
The transaction would give Phoenix £329 billion of assets under administration and more than 14.1 million policies, boosted by £84 billion of assets under administration and approximately 4.1 million policies from ReAssure.
The deal is expected to close in the middle of 2020, subject to approvals by Phoenix's shareholders, regulators and anti-trust authorities. Phoenix noted that it intends to finance the cash consideration through a combination of debt facilities and own cash resources.
BofA Securities served as lead financial adviser while Citigroup served as joint financial adviser for Phoenix. HSBC worked as sole sponsor, corporate broker and joint financial adviser, while J. P. Morgan Cazenove was corporate broker.