* Sale of insurance broking, premium funding businesses for
* Wesfarmers to exit entire insurance business after the
* Gallagher to become one of the biggest insurance brokers
in Australia, NZ
(Adds comments from Wesfarmers, Arthur J. Gallagher, analyst,
SYDNEY, April 7 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
"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
Shares in Wesfarmers gained 1.0 percent in Sydney trade on
Monday morning, against a 0.2 percent slip in the broader
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
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
($1 = 1.0759 Australian Dollars)
(Reporting by Maggie Lu Yueyang; Editing by Ryan Woo)