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Allianz offers €9.8 bln for rest of AGF unit

Allianz SE, Europe's biggest insurer, agreed to buy the rest of Assurances Generales de France for €9.8 billion ($12.7 billion), seeking to boost profit by taking full control of units across Europe.

Allianz SE, which owns about 58% of Paris-based Assurances Generales de France (AGF), offered €126.43 a share in cash and stock for the rest, the company said in a statement yesterday. That's 1.4% above Wednesday's closing price. Allianz also offered to buy out minority investors in its German life insurance unit, Allianz Leben. The AGF purchase, Allianz's largest since the $21 billion takeover of Dresdner Bank in 2001, comes after the Munich-based insurer forecast record profit for 2006. CEO Michael Diekmann said the acquisition is the „logical next step” after Allianz bought out minority shareholders in Italy's RAS Holding SpA for €5.7 billion in 2005. „It's a good thing for Allianz and AGF and the price is fair,” said Frederic Hamm, who helps manage $200 million at Agilis Gestion in Paris and owns AGF stock. „Given AGF's excellent results, it will lift earnings.” Allianz, a 117-year-old insurer that operates in 70 countries, changed its legal structure to a pan-European company at the time of the RAS deal, making it easier to carry out cross-border purchases. Speculation about a possible AGF buyout has since helped lift the French insurer's stock by more than 80%.

AGF shares rose 30 cents, or 0.2%, to €125 in Paris today. Allianz shares fell €2.97, or 1.9%, to €151.24. Shares of Allianz Leben jumped 18% to €780, above the €750 a share Allianz offered for the 9% of the unit it doesn't own. Emmanuel Soupre, who helps manage $19 billion at Neuflize Gestion in Paris and owns AGF stock, said he was „a bit disappointed” by the offer. „AGF is a remarkable company, well managed and which records regular earnings growth. Allianz could have made a bit more of an effort.” AGF contributes about 16% to Allianz's global life and health premium income and about 20% to its property and casualty premiums. Allianz Leben, Germany's biggest life insurer, accounts for more than 25% of Allianz's life premiums. Purchasing the remaining shares in the German unit will cost about €706 million, Allianz said.

„The transactions will complete the buyout of minorities in Allianz's largest operating entities and thus enable Allianz to further streamline its group structure across regions and business units,” the insurer said in the statement.
Also yesterday, Allianz agreed to buy the 50% of a Taiwan life insurance venture held by its partner, Uni-President Enterprises Corp. After the AGF acquisition, Euler Hermes SA, the world's largest credit insurer, and Allianz Portugal will be Allianz's biggest units with minority investors in Europe. Allianz owns about 65% of Allianz Portugal, while AGF owns about 71% of Euler Hermes. No buyout of Euler Hermes is planned, the companies said. AGF recorded a 33% increase in H1 net income to €1.02 billion on higher French sales after clients shifted more money into life insurance products. Life sales in France increased 15% in the period. CEO Jean-Philippe Thierry, who took over at AGF in 2001, has helped boost profit by selling smaller businesses and merging its French sales networks to trim expenses. Thierry in September announced plans to reorganize the company's French unit in a bid to win 250,000 new clients by 2010.

AGF's board „reacted favorably” to the offer, the French insurer said in a separate statement yesterday. The price represents a premium of 9.4% over AGF's volume-weighted average share price in the last three months and 19.1% over the average during the past six months, AGF said. To achieve full ownership of the French company, Allianz intends to apply a squeeze-out after the tender offer. Allianz acquired a majority stake in AGF for about $10 billion in November 1997, topping an unsolicited bid by Italian rival Assicurazioni Generali SpA. The cash portion of approximately €7.5 billion for the two European transactions announced yesterday will be „funded internally,” Allianz said. The deals won't affect Allianz's plans to increase the proportion of earnings it returns to shareholders, CFO Paul Achleitner said in a media conference call. „This could be done via dividend payout or share buyback and nothing changes in this regard.”

The insurer in November said it may use some of €7 billion of „excess capital” to buy back stock and raise the amount of profit it pays in dividends to 40% in the future from just below 20% currently. „In the past, Allianz didn't have enough financial room to carry out” the AGF buyout, said Nicolas Jacob, an analyst at Oddo & Cie in Paris who has an „add” rating on Allianz shares. „After a very good 2006, it can.” Allianz in November raised its forecast for 2006 profit to as much as €6.5 billion from an earlier goal of as much as €6 billion. The company earned €4.38 billion in 2005. Standard & Poor's and Moody's Investors Service yesterday said the acquisitions were not expected to have any impact on Allianz's credit ratings. The company has a AA- financial strength rating from S&P, and a Aa3 rating from Moody's. (Bloomberg)