Resolution, set up in 2008 to buy and profitably merge slow-growing British life insurers, said on Monday it hoped to complete the 2.75 billion pounds ($4.03 billion) takeover by the end of June.
The deal, to be part-funded by a 2 billion pounds cash call, would be Resolution’s second takeover after its acquisition of life insurer Friends Provident last year, easing concerns about the slow pace of its consolidation project to date.
“This move will take some pressure off Resolution’s management, who having targeted two or three acquisitions this year have so far not announced any,” Oriel Securities analyst Marcus Barnard wrote in a note.
The British disposal will give AXA more scope to pursue acquisitions in Asia, where Europe’s second-biggest insurer has been striving to boost its presence as part of a plan to triple the profits it generates in emerging markets by 2015.
“It leaves them well-placed to take advantage of assets as and when they come up for sale,” said James Shuck, an analyst at stockbroker Jefferies.
“It gives them more room for maneuver. They’ve got scope to do a 1 to 3 billion euros acquisition with no extra financing involved.
European and U.S. insurers are keen to increase their exposure to Asia, one of the fastest-growing insurance markets in the world as strong economic growth fosters an emerging middle class with strong appetite for financial services.
Britain’s Prudential (PRU.L) in March agreed a $35.5 billion takeover for AIG’s Hong Kong-based AIA unit, in what would have been the insurance sector’s biggest ever deal, but was forced to walk away after shareholders baulked at the price tag.
AXA, one of Asia’s largest foreign insurers, is seen as a potential bidder for businesses that could be sold by regional rivals ING (ING.AS) and AIA to repay government bailouts received at the height of the crisis.
However, any Asian deals may have to wait until AXA has completed a stalled plan to buy out minority investors in its regional unit, AXA Asia-Pacific. The company’s bid to take full control of the subsidiary is on hold because of regulatory concerns over a related disposal in Australia.
AXA said the deal with Resolution would result in a one-off writedown of 1.4 billion euros ($1.7 billion) in 2010, but would generate net cash proceeds of 1.7 billion euros while also boosting its capital strength.
AXA shares were up 2.7 percent at 13.46 euros by 1141 GMT. The stock is still down about 18 percent since the beginning of the year, partly reflecting investor concerns over the company’s capital reserves.
Under the deal, AXA would sell its British protection, annuities, and group pensions units to Resolution, but would keep its more profitable and less capital-intensive wealth management and direct protection operations.
“It’s sensible,” said West LB analyst Andreas Schaefer.
“In my view it’s one of the least attractive (markets) in Europe, margins are rather low, and overall growth is not really sufficient.”
Resolution flagged “significant” cost savings from combining the AXA units with Friends Provident, and said the merger would create one of Britain’s biggest providers of protection insurance and group pensions.
Resolution, founded by insurance tycoon Cive Cowdery, has set itself a target of buying and merging at least three life insurers before selling or floating the combined business in 2012.
The company told analysts and investors last year that it had identified 25 potential takeover targets, and was earlier this year reported to have held fruitless talks about buying the UK arm of Prudential (PRU.L).
Resolution shares were suspended pending the outcome of the deal talks as the purchase of AXA’s UK units would be classified as a reverse takeover under stock market rules.
AXA was advised by investment bank Credit Suisse.