Dai-ichi Life Insurance Co. will buy Protective Life Corp. (PL) for about 582.2 billion yen ($5.7 billion) to expand into the faster-growing U.S. market, marking the biggest foreign acquisition by a Japanese life insurer.
Dai-ichi, Japan's second-largest life insurer, will pay $70 per share in cash for Birmingham, Ala.-based Protective Life, a 34% premium over Protective's closing stock price of $52.30 on May 30, according to a joint statement from the two companies. Dai-ichi Life will sell up to 250 billion yen of shares to fund the acquisition, a separate filing in Tokyo by the Japanese insurer showed.
Japanese insurers are venturing abroad as a shrinking population at home erodes demand in the domestic market. The acquisition will give Dai-ichi, which previously bought Tower Australia Group Ltd. and a stake in Janus Capital Group Inc., access to clients across the U.S.
“The deal is in line with Dai-ichi's strategy,” said Mac Salman, head of Japan financials research at Jefferies Group in Tokyo. “It appears the market has quickly digested the potential dilution. Investors will hope the transformation in earnings, which this deal provides, will lead to growth in shareholder returns.”
The transaction will create the 13th-largest global insurer, with total assets of $424 billion, according to the joint statement. Protective's President and Chief Executive Officer John D. Johns and the current management team will continue to lead the business from Protective's current headquarters.
“This is the perfect set up for us, we think, in order to leap forward with our strategic plans,” Mr. Johns said by phone. “We will be the growth platform for Dai-ichi here.”
The deal will boost Dai-ichi Life's group premium income to about 4.65 trillion yen, on par with its bigger competitor Nippon Life Insurance Co.'s 4.86 trillion yen, according to Jefferies. The U.S. accounts for about 22% of the global insurance market and is expected to continue growing faster than Japan, according to the brokerage.
Protective Life, founded in 1907, has annual revenues of approximately $4 billion, with assets of about $69 billion as of Dec. 31, the insurers said.
Protective has added clients across the U.S. with 47 acquisitions of smaller insurers and blocks of policies from other firms over more than four decades, according to its website. It agreed last year to a $1.1 billion transaction to add U.S. policies from Axa SA and expanded in 2006 by buying insurance units from JPMorgan Chase & Co.
Dai-ichi's takeover is the biggest foreign acquisition by a Japanese life insurer, according to data compiled by Bloomberg. The deal is also the second-biggest U.S. takeover by a Japanese company in the past 12 months, the data showed.
The transaction, which has been approved by both companies' boards of directors, is expected to close by the end of 2014 or early 2015, subject to Protective stockholders' approval, regulatory approvals in Japan and the U.S., and other customary closing conditions.
“If it is a good deal, it's worth pursuing but it also suggests that they don't have enough capital to fund the acquisition,” said Masamitsu Ohki, senior fund manager at Fivestar Asset Management Co. in Tokyo. “If Dai-ichi is going to continue expanding abroad, it's important to weigh the benefits of the deals and how the financing would impact the company.”
Among other Japanese insurers that have entered the U.S. market is Nippon Life, which invested in Newark, N.J.-based Prudential Financial Inc. amid the financial crisis. In 2008, Tokio Marine Holdings Inc. completed a $4.5 billion purchase of commercial insurer Philadelphia Consolidated Holding Corp., according to data compiled by Bloomberg.