Protective Life Soars After Dai-ichi Buyout Announcement

Eileen Meng Lu  |

On June 4 Protective Life Corporation’s ($PL) stock rose 18 percent to hit $69.36 a share after Japan's Dai-ichi Life Insurance Co. (DCNSF) agreed to buy 100 percent of the company for $5.7 billion.

Under terms of the acquisition, Dai-ichi Life plans to pay $70 per share to buy the Birmingham, AL-based Protective Life Corporation, with a target market capitalization of $4.63 billion. The company booked premiums and policy fees of $2.98 billion and a net profit of $393.5 million in 2013. The merger is expected to happen between December 2014 and January 2015, with approval by shareholders and Japanese and U.S. regulations, according to Dai-ichi Life. 

Merger Unexpected, Though Talks Had Long Been Underway

John D. Johns, president and chief executive of Protective Life, said that the conversation about the deal between Dai-ichi and Protective Life started in March. The picture became clearer by the end of May, and the deal was set in motion.

Over 5.8 million shares of Protective Life Corporation were traded on Monday, one day before the acquisition was agreed. The stock price had already jumped from $52.30 per share to $58.72 over the weekend, for a 34 percent premium.

Koichiro Watanabe, President of Dai-ichi Life said, "We are pleased to be entering the U.S. life-insurance market by bringing such an outstanding company as Protective into our portfolio.”

According to Dai-ichi Life spokesman, the company would issue up to 197 million new shares based on the closing price on June 3. The new shares will be underwritten by Goldman Sachs Group Inc. (GS) starting on June 12.

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It would be the largest overseas acquisition by the Japanees insurer so far, and was one that was largely unexpected.

Move Extends Reach of Dai-ichi into American Market

On one hand, from the perspective of Dai-ichi Life itself, a growth platform in North America would certainly be a better chance for this Japanese company. After the merger, Protective Life will retain existing management..  

Dai-chi’s strong position is to some extent owed to the good performance of its Australian unit.  In 2010 Dai-ichi Life bought out Tower Australia Group Ltd for $1.2 billion. Thanks to the overseas merger, it has becomes Japan's second-largest private-sector life insurance corporation, with deep pockets to match. It was also the only insurer in Japan booked an increase in premium revenues for the year ended this March.

On the other hand, Protective Life ranked 36th among U.S. insurers by premium income, it may not the best solution, but definitely a good choice for Dai-ichi to expand its overseas market. A healthy developed company with steady growing value is something overseas acquisitions could not ask for more of.  

On top of that, this 107-year-old Protective Life has had positive revenue growth over the recent years, and has long looked potentially undervalued. According to its report, Protective Life announces 32.8 percent growth in EPS this year and 43.2 percent in the past 5 years. The company also projected about 10 percent raise in EPS for the next five years. The company also has a steady 9.6 percent raise on sales in the past 5 years, and shows 26.6 percent up on sales in the past quarter.

For stockholders, its solid stock price performance also set their mind at ease. With the pleasant price growth in the beginning of June, it’s expected to see its growth upon new shares to be issued next week.




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