Mitsui Sumitomo buying Amlin in $5.33bn cash deal

After the rumours began to fly last night, very quickly it has become official. Japanese insurance group Mitsui Sumitomo and London headquartered insurance and reinsurance specialist Amlin, have reached an agreement which will see Mitsui Sumitomo buy Amlin for approximately $5.33 billion.

An announcement this morning says that Mitsui Sumitomo Insurance Company, Limited (“MSI”) and Amlin plc (“Amlin”) have “reached agreement on the terms of a recommended cash offer pursuant to which MSI will acquire the entire issued and to be issued share capital of Amlin.”

It’s the latest in a string of insurance and reinsurance M&A deals, as players look to acquire scale and diversification in order to more successfully navigate the challenging marketplace and softened reinsurance price environment.

Amlin shareholders will receive 670 pence in cash for each share, valuing the firm at approximately GBP£3.468 billion, or USD$5.33 billion. That’s significantly above the GBP£2.45 billion Amlin was said to be worth, at market value, or the GBP£2.73 billion or USD$4.16 billion that was quoted by the Nikkei.

Amlin shareholders will also receive the interim dividend of 8.4 pence per share for the period ended 30th June 2015. The Acquisition values the entire issued and to be issued share capital of Amlin at approximately £3,468 million (approximately ¥ 634.7 billion), the announcement said.

This is a premium of 36% over the Closing Price of 492.5 pence per Amlin Share on 7 September 2015, or 32.9% to the volume weighted average Closing Price per Amlin Share for the one month period up to and including 7 September 2015.

The cash offer from Mitsui Sumitomo represents a multiple of 2.4x to Amlin’s net tangible book value per share (on a fully diluted basis) as at 30 June 2015.

Of course, as well as the diversified global reinsurance book, the Lloyd’s specialty business, the insurance expertise and everything else that Mitsui Sumitomo gains from buying Amlin, the Japanese firm also gains the 75% stake that Amlin owns in specialist insurance-linked asset manager Leadenhall Capital Partners.

Yasuyoshi Karasawa, President and Chief Executive Officer of MSI, commented on the announcement; “We are delighted to be announcing the combination of MSI and Amlin to create a world-leading insurance company, with an international business anchored in the Lloyd’s market. The combination will accelerate MSI’s strategy of growing its international business, and drive a number of benefits across Amlin’s business as a result of it being part of a substantially larger group.

“We believe this combination will create significant value for MS&AD’s shareholders, and will also position the group to drive sustainable long term growth given the enhanced platform that the combined group will enjoy. This transaction will also allow us to better serve our clients and brokers, given the enhanced product mix and scale of the combined group.

“We look forward to welcoming Amlin’s management team and employees to the MSI organisation. In particular, we are excited about the opportunity to benefit from the strategic insight that Charles Philipps and his colleagues will be able to provide in our international business following completion of the proposed transaction.”

Charles Philipps, Chief Executive of Amlin, added; “We believe that this combination is extremely compelling. We have always had a very high regard for MSI, our strategies and corporate values are closely aligned, and this transaction will now provide Amlin with the increased scale and financial muscle that will be required for long term success in our industry. It delivers excellent value for shareholders, improved career prospects for our employees, and enhanced continuity and security for our clients.

“I am confident that, with our combined skills and geographic coverage, we will continue to go from strength to strength. We believe that our respective Lloyd’s, Bermudian and European businesses fit well together and will allow increased development opportunities. MSI’s presence in the ASEAN region and its ambitions in the United States clearly offer very exciting prospects for Amlin.

“We are looking forward to working closely with MSI’s management and the MSI teams with whom we will be combining.”

There has been a significant amount of discussion about the value of M&A deals lately, with some observers noting that size and scale isn’t everything, and that the risks associated with the execution can be significant.

However, this deal could be accretive to both parties. If Mitsui Sumitomo allow Amlin to flourish with the full support of the Japanese group’s scale and capital base, it could be a compelling deal that helps to propel Amlin to the next tier of growth and market position.

For ILS manager Leadenhall Capital Partners, while we’re sure it will be business as usual to a degree, the new ownership could provide an interesting way to gain greater access to the Japanese and Asian market, both for underwriting ILS business as well as for access to investors in the region.

Mitsui Sumitomo is building itself into a truly global and diversified insurance and reinsurance business, which will reduce some of the concerns that analysts have had with Japanese insurance groups that have been deemed over-focused on their home territory and lacking diversification.

It will be interesting to see what M&A deal comes next, as the market continues to reshape itself in response to the structural softening and challenging environment.