The shares of Protective Life Corp. ( PL) inched up 0.8% to close at $43.49 on Oct 2, reflecting investor’s confidence towards the stock. The news of closing the acquisition of MONY Life insurance Company ("MONY") by Protective Life Insurance Company, a subsidiary of Protective Life was taken in a positive stride by the market. Protective Life also announced that it has reinsured certain policies of MONY Life Insurance Company of America (“MLOA”).
The transaction, which was originally announced in Apr 2013, has been closed on the scheduled time. The total cost of the acquisition came in at $1.06 billion of which $686 related to the acquisition of MONY and the balance $370 million related to the reinsurance transaction.
Protective Life has used a mix of debt and excess capital to fund the purchase. While it has only used that level of debt to maintain its targeted leverage level of 30% the rest has been funded from excess capital. Though the company’s risk adjusted capital will suffer due to the use of debt, it will not have any material impact on the long-term debt servicing capability of the company.
The acquisition is expected to be accretive to Protective Life’s earnings in the upcoming period. It is expected to aid earnings by 10 to 15 cents per share in 2013, 55 to 65 cents per share in 2014 and to a further 65 to 75 cents per share in 2015 excluding, integration and transition costs.
The Zacks Consensus Estimate for 2013 and 2014 is currently pegged at $3.93 and $4.67 respectively. We expect the estimate to move north with analysts raising their estimates with optimism over the acquisition.
Protective Life’s acquisition segment is a key differentiator for the company. Under this segment the company buys dormant business or a block of business to generate efficiencies from them.
Given its seasoned, stable character, the segment has traditionally contributed to the long-term earnings and thus improved return on equity of the company. The initial capital investments in the acquisitions segment generate returns quickly and can then be redeployed in other business activity.
Protective Life has a long history of successfully acquiring both closed blocks of business and small companies. Led by a successful team, Protective Life’s acquisition segment has made 46 acquisitions till date. The company has altogether invested more than $2.76 billion in making these acquisitions. Going forward, we expect more such deals to be sealed by the company, given sufficient cash in hand.
Following the sell out of MONY to Protective Life, the rating agency A.M. Best Co. withdrew its rating watch over the company. When the transaction was announced in Apr, 2013, the rating agency placed the ratings of MONY under review with negative implications. A.M. Best has now avowed the financial strength rating of A+ and issuer credit rating of “aa-” of MONY Life Insurance Company ( MONY), with a stable outlook.
Protective Life retains a Zacks Rank #3 (Hold). Other players Torchmark Corp. ( TMK), Lincoln National Corp. ( LNC) and Stancorp Financial Corp. ( SFG) all with Zacks Rank #2 (Buy) are worth investing in.