On Tuesday, Delphi Financial Group Inc. (:DFG) shareholders approved the company’s buyout by Tokio Marine Holdings Inc. (TKOMY). A total of 86.1% of the shareholders were voted in support of the merger.
The shareholders also voted to make an amendment to Delphi’s certificate of incorporation regarding “disparate consideration” such that the holders of Class B shares receive a higher compensation than the Class A shareholders.
The Story So Far
The deal was announced in December 2011 when Tokio Marine expressed its intention to penetrate the U.S life insurance market. Per the agreement, Class A stockholders will receive $43.875 per share in cash while the holders of Class B shares will receive a higher compensation of $52.875 per share. Apart from the cash payment, the shareholders will also be given a one-time special dividend of $1 per share.
Earlier, the agreement faced opposition from Delphi shareholders as it was structured in a way that Class B shares, held by Delphi’s CEO Robert Rosenkranz, would fetch a higher payout in comparison to Class A shares. The agreement was tagged as unfair and blocked on account of the provisions regarding “disparate consideration.”
However, last week the judge rejected investor claims about the deal being unfair, but ruled in favor of discontented shareholders receiving monetary compensation for Rosenkranz’s actions.
A major hurdle before the deal has been overcome and the sale is expected to be completed by the second quarter of 2012, subject to U.S and Japanese regulatory compliance and the fulfillment of other customary conditions.
Importance of the Acquisition for Tokio Marine
According to the Tokio Marine management, the deal will increase the profit contribution from overseas businesses, from 37% to 46%.
The Japanese insurer is aggressively pursuing diversification of its business beyond the domestic territory. In the current scenario, the life insurance market in Japan is not likely to register strong growth owing to an aging population and a maturing market.
It is not only the life insurance sector that is subject to such headwinds, the non-life insurance sector also has its share of challenges to deal with. With the aging of the Japanese population, the number of vehicles insured and other factors that drive motor insurance, a mainstay product (of non-life insurance sector), are likely to decrease.
Moreover, non-life insurance industry is subject to a number of issues and changes in the economic environment, such as the financial crisis of 2008, and a maturing non-life insurance market.
Natural calamities such as the East Japan earthquake in 2011, which caused unprecedented damage, further added to the list. In this situation, penetrating overseas markets is a key to growth, primarily for large companies. This is attested by a series of alliances and mergers that have taken place in the industry since 2000.
On the other end of the spectrum, Tokio Marine will benefit from a large U.S. insurance market, which is pegged at about 89 trillion yen by Bloomberg. Also, given the mature non-life insurance market in Japan, companies in the sector have been expanding their overseas businesses, especially in emerging Asian markets where growth rates are remarkably high.
Tokio Marine has been on an international expansion spree recently. The deals inked include an agreement for a joint venture life and non-life insurance company in Saudi Arabia, setting up of the Canton branch of its Chinese subsidiary, opening an office in Cairo and getting an approval for the establishment of the Jiangsu branch of its Chinese subsidiary.
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