July 23, 2008 / 6:56 AM / 11 years ago

Tokio Marine to buy Philadelphia Cons for $4.7 bln

TOKYO (Reuters) - Tokio Marine Holdings Inc (8766.T) will buy property and casualty insurer Philadelphia Consolidated Holding Corp PHLY.O for about $4.7 billion, in the largest acquisition by a Japanese financial firm in the United States.

Tokio Marine Holdings Inc President Shuzo Sumi speaks at the Reuters Japan Investment Summit in Tokyo July 1, 2008. REUTERS/Toru Hanai

Japan’s largest property and casualty insurer said it would pay $61.5 in cash for each share of Philadelphia Consolidated, a 73 percent premium to Tuesday’s closing price of $35.55.

Saddled with sluggish growth at home and unburdened by subprime investments, many cash-rich Japanese firms are once again hunting for opportunities abroad.

Japanese drug companies, food makers and financial firms have all joined in the push overseas. Outbound Japanese acquisitions for 2008 came to $24 billion as of July, nearly matching the haul for all of last year, according to Thomson Reuters data.

“This gives us access to the world’s largest casualty insurance market, one that is five times the size of Japan’s,” Tokio Marine Tokio Marine President Shuzo Sumi told a news conference.

Sumi told Reuters earlier this month that he was looking at opportunities to acquire U.S. and European competitors to expand outside Japan, where it still generates four-fifths of its profits.

In March the Japanese firm completed the purchase of Lloyd’s of London insurer Kiln Ltd for 442 million pounds ($881 million), to increase its European presence.

The new acquisition will allow Tokio Marine to expand its U.S. business beyond its current focus on Japanese firms, Sumi said.

Philadelphia Consolidated is strong in offering niche insurance products which are relatively shielded from economic cycles, Tokio Marine Managing Director Shin-Ichiro Okada told reporters.

The U.S. company offers insurance for institutions such as adoption agencies and martial arts studios, as well as zoos and volunteer fire departments, according to its Internet site.

GROW OR DIE

Although little known outside of Japan, the 129-year-old Tokio Marine has become increasingly aggressive in expanding overseas. Japanese insurers face limited prospects for expansion at home given its slow-growth economy and projected decline in population.

“They face the options of either turning to asset management or going overseas, and M&A is the most efficient way to do this,” said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

The acquisition will likely help diversify Tokio Marine’s business portfolio and help offset its high dependence on the Japanese market, ratings agency Standard & Poors said in a statement.

“(Philadelphia Consolidated) has achieved high growth and strong revenue, supported by robust sales of its specialized products focused on targeted commercial markets,” the ratings agency said.

Philadelphia Consolidated’s net profit totaled $326.8 million in the year to December 2007, up 13 percent from a year earlier and more than double from two years prior.

BIG BET

The deal represents a large bet on the U.S., even for the cash-rich Tokio Marine. Unlike its Kiln acquisition — which was paid entirely in cash — the Japanese company will finance about half of the purchase with cash and half with debt, Sumi told reporters.

Sumi also described the premium on the stock price as “fair and appropriate”, when considering the opportunity for mid- to long-term growth in the world’s largest economy.

He also did not rule out further acquisitions. “We will consider what to do when the next opportunity presents itself,” he said.

Tokio Marine said it expected the transaction to be completed in the fourth quarter of 2008 and that it would consolidate Philadelphia’s earnings into its financial statements from the financial year starting April 2009.

It is the biggest U.S. acquisition by a Japanese financial firm on record and the second-biggest cross-border deal by a Japanese firm this year, according to Thomson Reuters data.

Takeda Pharmaceutical Co’s (4502.T) $8.1 billion purchase of U.S. biotech firm Millennium Pharmaceuticals is still the largest such deal this year, the data showed.

Fox-Pitt Kelton Cochran Caronia Waller was the financial adviser to Tokio Marine, while Merrill Lynch MER.N assisted Philadelphia Consolidated.

Reporting by David Dolan, Yumiko Nishitani, Nathan Layne and Elaine Lies; Editing by Hugh Lawson/Rory Channing

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