Rare acquisition amid pandemic will boost market giant's reach
in property policies
By Leslie Scism and Ben Otto
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 9, 2020).
U.S. insurance giant Allstate Corp. agreed to acquire peer
National General Holdings Corp. for about $4 billion in cash,
expanding its reach in the personal property-liability
business.
Allstate will add relationships more than 42,000 independent
agents across the U.S. in the acquisition. While many insurance
companies have increasingly steered away from armies of agents as
more consumers buy all types of products online, the deal reflects
Allstate's view of a continued role for middlemen in selling
policies to individuals.
The pact also highlights technological change that is coursing
through the car- and home-insurance industry, including to speed up
the buying process and make life easier for agents. Wall Street
analysts said the relatively unknown National General, based in New
York City and partially owned by the low-profile entrepreneurial
Karfunkel family, has advanced technology.
The deal for National General is one of the biggest since the
global coronavirus pandemic as economic uncertainty continues to
complicate leadership decisions at companies across the world.
In an interview, Allstate Chief Executive Tom Wilson said that
the pact had its origins early this year and was put on hold by the
pandemic. But he said fresh scenario planning indicated that the
possible financial returns "from moving forward outweighed the
potential risk of the pandemic getting worse." He added: "Nobody
knows for sure."
The downside risk includes a major recession that leaves
yet-more people unemployed and unable to pay their car and home
premiums, and would lead to steep drops in purchases of homes and
cars, he said.
To date, "the pandemic has had modest impact on Allstate and the
auto-insurance industry," he said.
In fact, car insurers benefited in one big way: Shelter-in-place
rules kept millions of policyholders' vehicles parked in driveways,
and accident rates plummeted. Allstate has returned more than $1
billion in premiums to its customers, part of an industrywide
movement in which insurers slashed billions of dollars of premiums
owed to them in April and May under tens of millions of policies,
prodded partly by consumer activists.
More recently, traffic volume has picked up as many states have
lifted shelter-at-home restrictions.
Mr. Wilson said the deal highlights that while some consumers
don't want help from agents, "some people do want help, and we'll
do whatever they want....Technology enables you to do that better,
cheaper and faster."
Allstate said the acquisition would increase its market share in
personal property-liability insurance by more than 1 percentage
point to just over 10%. That brings it nearer to No. 3
Progressive.
Besides auto insurance, National General's product offerings
include accident- and supplemental-health insurance policies and
"lender placed insurance," which is coverage that banks and other
lenders require borrowers to have in place to protect underlying
collateral.
Under the deal, shareholders of National General will receive a
total of $34.50 a share, an offer that comprises $32 a share from
Allstate and expected closing dividends of $2.50 a share, the
companies said. The total offer represents a 69% premium to the
stock's last-traded price.
Allstate will fund the deal with $2.5 billion in cash resources
at Allstate and National General and by issuing $1.5 billion in new
Allstate senior debt.
Allstate investors reacted warily. Allstate shares fell 4.8%,
while National General shares rose 66%.
Many Allstate shareholders are wondering if they might be better
off if the car insurer ramped up its stock-repurchase program
rather than do the deal, some analysts said in notes to investors.
Allstate is maintaining its stock-repurchase program, but
"investors will focus on the fact that this capital could have been
used to buy back shares," Wells Fargo Securities analyst Elyse
Greenspan said.
Evercore ISI analyst David Motemaden said Allstate becomes a
more-complicated story for investors as now "there is an
integration and less dry powder for capital return."
Allstate said the deal would have no impact on its current
roughly $3 billion share-repurchase program. Allstate's Mr. Wilson
said the deal would be "accretive to adjusted net income earnings
per share and return on equity beginning in the first year."
National General's gross premiums written were $5.6 billion in
2019, which generated $319 million in operating income, the
companies said.
Allstate said it is acquiring an experienced management team in
the deal. "We are excited about combining our team's expertise and
commitment with Allstate to become a top-five personal-lines
carrier for independent agents while offering a broader array of
products," Barry Karfunkel, co-chairman and CEO of National
General, said.
Billionaire tech mogul Michael Dell's private investment firm
MSD Capital, which owns about 7.4% of National General's common
shares outstanding, said it supports the deal.
National General's board has approved the transaction, which
includes a breakup fee of $132.5 million. The companies said the
deal is expected to close early next year, subject to regulatory
approvals.
Write to Leslie Scism at leslie.scism@wsj.com and Ben Otto at
ben.otto@wsj.com
(END) Dow Jones Newswires
July 09, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
National General (NASDAQ:NGHC)
Historical Stock Chart
From Jun 2024 to Jul 2024
National General (NASDAQ:NGHC)
Historical Stock Chart
From Jul 2023 to Jul 2024