TKOMY Tokio Marine Holdings Inc (PK)

Tokio Marine Holdings Inc. (8766.TO) said Wednesday that it has agreed to buy Delphi Financial Group Inc. (DFG) for $2.66 billion, or Y205 billion, underscoring once again the ravenous appetite for overseas acquisitions among Japan firms facing a strong yen and a shrinking domestic market.

The acquisition would be the 6th biggest overseas deal by a Japanese company this year, according to Dealogic. Under the agreement, Japan's largest nonlife insurer by market value will pay a 59% premium on the average price of Delphi stock held by common shareholders over the past twelve months, Tokio Marine said. The transaction, which would make Delphi a wholly-owned unit Tokio, is expected to be completed in the April-June quarter of 2012, the company said.

The acquisition, coming just days after Fujifilm Holdings Corp. (4901.TO) announced it would buy U.S. medical-equipment maker SonoSite Inc. for $995 million, illustrates once again how Japanese companies are taking advantage of the yen's appreciation to aggressively move overseas amid concerns about the shrinking market at home. The dramatic surge in overseas interest has made Japan the biggest cross-border acquirer behind the U.S. and U.K. this year.

Like other sectors that are facing a saturated domestic market, the insurance sector has been very active in overseas deals in search of a bigger slice of market share and growth opportunities outside of its home market in the face of headwinds in Japan, with its shrinking population and sluggish economy.

"The weight of our overseas business is growing as the domestic nonlife insurance industry shrinks in relative size," Tokio Marine President Shuzo Sumi said at a press conference. He noted that the deal will boost the company's profit sources from overseas business activities, estimating that 46% of profits will come from activities outside Japan after the deal, compared with the current ratio of 37%.

"We have a list of potential targets lined up that doesn't depend on size," Sumi said, adding that the strong yen was not the major factor in Tokio Marine's acquisition strategy, since the company put its list together more than a year ago.

Japan's leading nonlife insurer has already made significant overseas acquisitions over the past few years, buying U.K. insurer Kiln for about Y95 billion and U.S. Philadelphia Consolidated Holding Co. for $4.7 billion in 2008.

"We'll continue seeking acquisition opportunities," Sumi said.

Delphi is a financial services company focused on specialty insurance and insurance-related businesses with the number of about 1900 employees.

The U.S. listed company has life insurance operations, P&C insurance operations such as workers' compensation and absence management services through its subsidiaries.

"Delphi is an outstanding insurance group with a strong focus on niche business lines in the employee benefits market," Sumi said. It racked up core premium and fee income worth $1.42 billion in the year ended December 2010.

Tokio Marine said U.S. life insurance and casualty insurance market is the biggest in the world with a market size valued at Y89 trillion and still has potential for future growth. The deal, it said, will help further strengthen the company's business base in the U.S.

Tokio Marine said it will pay $43.875 per Class A common stock, which is owned by common shareholders and pay $52.875 per Class B common stock, which is owned by Delphi's chairman and chief executive Robert Rosenkranz and entities he controls. The Class B stock has voting rights equivalent to 10 Class A common shares.

The company said it will use cash on hand and bank loans to make the acquisition of Delphi.

Macquarie Securities advised Tokio Marine on the deal, while Lazard advised Delphi Financial.

-By Atsuko Fukase and Hiroyuki Kachi, Dow Jones Newswires; 813-6269-2789; Hiroyuki.Kachi@dowjones.com

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