Delphi Merges with Tokio Marine - Analyst Blog
May 16 2012 - 12:38PM
Zacks
U.S. insurer Delphi Financial Group Inc. announced the
completion of its acquisition by Japan-based Tokio Marine
Holdings Inc. (TKOMY) yesterday.
The merger was completed for a cash consideration of
approximately $2.7 billion. The acquisition price translates into a
substantial premium of 42% over and above Delphi’s book value of
$1.9 billion as of March 31, 2012. Delphi shareholders have been
awarded a special dividend of $1 per share.
Delphi’s stock traded on the New York Stock Exchange for the
last time on May 15, 2012. It would be made unavailable for
trading before the opening bell on May 16 and de-listed later
on.
Despite being a wholly-owned subsidiary of Tokio Marine, Delphi
will continue to operate on its own. It will work in tandem with
Philadelphia Insurance, another U.S. subsidiary of Tokio Marine.
Though both companies will serve the same markets, there will be no
conflict of interests as their products will be different from each
other.
The deal which was announced in December 2011, had earlier faced
opposition from Delphi’s shareholders who claimed that that the
deal was structured in a way that Class B shares, held by Delphi’s
CEO Robert Rosenkranz, would fetch a higher payout in comparison to
Class A shares.
In January 2012, the agreement was tagged as unfair and
consequently the shareholders sued the company in Delaware Chancery
Court, Wilmington to stop the sale, on account of the provisions
regarding “disparate consideration.”
The judge ruled that the plaintiffs may continue with their
litigation. However, they could vote since they were already
receiving a premium for their share. The judge also stated that
discontented shareholders had the right to receive monetary
compensation for Rosenkranz’s actions.
Consequently, at a special meeting held in March 2012, Delphi
received approval from its shareholders with 86.1% of them voting
in favor of the sale.
Delphi expects to pay its Class A shareholders a monetary
compensation amounting to $49 million related to legal settlements.
The liability is, however, contingent to approval from Delaware
courts, due in late second half of 2012.
Following the announcement of completion of the acquisition,
Fitch Ratings sprang into action and upgraded the ratings of Delphi
and its subsidiaries. The rating agency upgraded Delphi’s issuer
default rating (IDR) to “A-“ from “BBB”, senior notes due 2020 to
“BBB+” from “BBB-“and junior notes to “BBB+” from “BB”.
The issuer financial ratings of Delphi’s chief operating
subsidiaries – Reliance Standard Life Insurance Co., First Reliance
Standard Life Insurance Co. and Safety National Casualty Corp. were
all raised to “A+” from “A-“. All the ratings have been revised
from positive to a stable outlook.
Fitch’s decision to raise Delphi’s ratings is based on the
premise that the company will be able to sustain the current
capital levels of its subsidiaries. Moreover, Delphi will also have
the capital strength of Tokio Marine to fall back on.
Fitch views that Delphi fits very well within Tokio Marine
strategic goal of expanding in the U.S. insurance market. Given
Delphi’s niche presence in the excess workers’ compensation and
group disability insurance markets in the U.S., the rating agency
believes that Delphi may gradually become a core operating
subsidiary of Tokio Marine.
TOKIO MARINE HL (TKOMY): Free Stock Analysis Report
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