In an effort to strengthen its foothold in Canada, The Travelers Companies, Inc. (TRV) has proposed the acquisition of The Dominion of Canada General Insurance Company from E-L Financial Corporation Limited for a cash consideration of $1.1 billion (C$1.125 billion). Dominion is the wholly owned subsidiary of E-L Financial.
The deal will likely culminate in the fourth quarter of 2013, pending closing conditions.
The proposed acquisition is a testimony of Travelers’ prudent investment strategy, wherein the company strives to expand in attractive and growing market place outside the United States. Previously, in Dec 2012, the company had made a similar attempt by increasing its stake in J. Malucelli Participações em Seguros e Resseguros S.A., Travelers’ joint venture in Brazil, to 49.5% from 43.4%.
Dominion, which has worked toward becoming one of the largest property and casualty insurers, was founded in 1887 and is headquartered in Toronto. After the completion of the merger, the merged entity shall remain headquartered in Toronto. Travelers expect the acquisition to be slightly accretive to earnings per share in 2014.
Furthermore, the combination of Travelers Canada’s surety, management liability and commercial middle market products offering with Dominion’s commercial and personal portfolios will immediately add to Travelers’ product portfolio in Canada.
With the acquisition, Travelers shall be able to widen its commercial lines of businesses in Canada through Dominion’s widespread distribution network and customer base. Additionally, Travelers proficiency in claim and risk control besides prudent use of data and analytics will add to the operational performance of the business.
Travelers expect to fund the acquisition through a combination of internal resources and debt and/or preferred stock financing. The company ended the first quarter 2013 with cash balance of $243 million and retained earnings of $22.1 billion. Nevertheless, Travelers does not foresee any impact on its share repurchases for 2013 or 2014 due to this funding.
Travelers presently carries a Zacks Rank #2 (Buy). With optimism over the proposed acquisition, we expect analysts to revise estimates upward, which will likely raise the Zacks Rank as well.
Property and casualty insurer Montpelier Re Holdings Ltd. (MRH), HCI Group, Inc. (HCI) and Hilltop Holdings Inc.(HTH), among others, carry a favorable Zacks Rank #1 (Strong Buy).
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