UPDATE 2-Wesfarmers exits insurance with sale of broking unit to U.S. insurer

Sun Apr 6, 2014 11:25pm EDT

* Sale of insurance broking, premium funding businesses for A$1.01 bln

* Wesfarmers to exit entire insurance business after the sale

* Gallagher to become one of the biggest insurance brokers in Australia, NZ (Adds comments from Wesfarmers, Arthur J. Gallagher, analyst, share prices)

SYDNEY, April 7 (Reuters) - Australian conglomerate Wesfarmers Ltd has agreed to sell its remaining insurance units for A$1.01 billion ($938.74 million) as the operator of the Coles supermarket chain streamlines its businesses and focuses more on retail.

Wesfarmers, founded a hundred years ago in Western Australia as a farmers' cooperative, said on Monday that it is selling its insurance broking and premium funding businesses to U.S.-based Arthur J. Gallagher & Co.

The sale comes at a time when Arthur J. Gallagher, one of the world's largest insurance brokers, is trying to grab a bigger share of the Australian market. The U.S. firm, which already operates in the country, will be contending with domestic players such as IAG, Suncorp Group, and QBE Insurance Group, and other international names including Marsh & McLennan and Aon.

"It's an interesting development for the Australian broking market, because it's quite a significant move by an offshore player," said Toby Langley, a Sydney-based insurance analyst at Nomura.

"The entry of a large offshore operator may create renewed interest in the broking space, and potentially the broader Australian commercial insurance market as well," he said.

Arthur J. Gallagher said in a separate statement that the acquisition was "an important strategic step" to expand in Australia and New Zealand.

"Together we will have a tremendous platform for growth as we expand throughout Australasia," said Chief Executive J. Patrick Gallagher. "Our combined operations will become one of the largest insurance brokers in Australia and New Zealand."

The Wesfarmers insurance broking unit reported A$331.1 million in revenue in the year ended June 30, 2013, Gallagher said.

Shares in Wesfarmers gained 1.0 percent in Sydney trade on Monday morning, against a 0.2 percent slip in the broader market.

GOOD BUSINESSES

Wesfarmers expects to record a pre-tax profit of about A$310 million to A$350 million from the deal with Arthur J. Gallagher. In addition, Wesfarmers would receive A$150 million to repay financing of the premium funding operations.

The Arthur J. Gallagher deal comes four months after Wesfarmers announced the sale of its insurance underwriting business to Insurance Australia Group Ltd (IAG) for A$1.85 billion. The IAG deal has received approval from the Australian Competition and Consumer Commission.

"The businesses have been good businesses for Insurance Australia Group, and Gallagher, but there are some aspects of the business we think that they will be better able to run than we were," Wesfarmers Managing Director Richard Goyder said in a telephone interview, without elaborating.

Local media reported in March that Wesfarmers planned to sell the insurance broking business via an initial public offering worth around A$1.12 billion.

Goyder said the trade sale was a "good outcome", when asked why the IPO did not go ahead.

The Arthur J. Gallagher deal is subject to regulatory approvals that include the go-ahead from Australia's Foreign Investment Review Board, Wesfarmers said. It expected to get the approvals in several months.

The two sales, which could generate pre-tax proceeds of about A$3 billion and a pre-tax profit of A$1.01 billion to A$1.085 billion for the group, are consistent with the company's focus on disciplined portfolio management, Goyder said in a statement on Monday.

Wesfarmers in February reported a 11.2 percent rise in its first-half profit, underpinned by its strong retail businesses that include the Coles supermarket chain, Officeworks, Bunnings and Kmart.

Wesfarmers' Coles and the country's largest supermarket chain Woolworths Ltd, which together control 80 percent of Australia's supermarket sector, are expecting improved trading this year as consumer sentiment recovers from a tough 2013. ($1 = 1.0759 Australian Dollars) (Reporting by Maggie Lu Yueyang; Editing by Ryan Woo)

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