Axa Financial's planned purchase of the Mony Group for $1.5 billion in cash would make the combined company the No. 1 provider of variable life insurance and the No. 4 provider of variable annuities in the United States - if, of course, their shareholders let them go through with it.
Axa Financial, the U.S. arm of Axa Group in Paris, said Wednesday that it intends to buy Mony for $31 per share, a 5.7% premium based on Wednesday's closing price.
In a conference call Thursday, company executives said the deal would give Axa expanded distribution in this country and a broader array of products and services.
"In terms of distribution this combination would increase Axa's retail sales force by about 25%," said Christopher "Kip" Condron, the president and chief executive officer of Axa Financial, during the call. He said that Mony's 1,300 agents dovetail well geographically with Axa's 5,000.
In addition to its agent force, Axa is the second-largest seller of variable annuities through U.S. banks, according to Kenneth Kehrer Associates, a consulting firm in Princeton, N.J.
Michael Roth, the chairman and chief executive officer of New York-based Mony, said another similarity is that "at the core of both companies' distribution systems is a belief in the value of an adviser-based model." Mr. Condron added that Mony also has strong distribution of life insurance in the wholesale marketplace, though "Axa is ahead of Mony in the wholesale distribution of annuities."
"Together this makes for a terrific combination," Mr. Condron said.
Institutional investors were not so sure.
David B. Heller of Advisory Research in Chicago, an institutional investor, questioned the way Mony was valued in the deal. The deal is unfair to shareholders, he said, and "a disgrace."
"We will strongly vote against this acquisition, and we will strongly vote to remove the directors and present management of this company," he said.
Mr. Roth said the price was accepted after analysis by the company's board of directors and its investment banker, Credit Suisse First Boston. "We believe that the $31 cash price properly reflects the value of our organization."
Mr. Condron also said he believed the price is fair, as did Axa Group chief executive officer Henri de Castries in published reports.
Noting that Mr. de Castries had been asked about possible counteroffers that morning, in a Paris press briefing, Mr. Condron said he felt the risk in this deal was no greater than in any other. "Is there a risk of a counteroffer? In any transaction there's that risk. We don't have a particular concern here; we've done quite a bit of due diligence."
A research note from Keefe, Bruyette & Woods Inc., issued Thursday morning, said the purchase price is 75% of Mony's book value at June 30 and fell at the low end of a $31- to $43-per-share takeover valuation range that the firm estimated for the insurer in August.
The report stated that the valuation was "among the lowest paid for a U.S. life insurance company," since most such transactions have been valued at 1.5 to 2.5 times GAAP book value. However, the report continued, "we do not believe that other potential acquirers are likely to offer a higher price."
The price of Mony shares pushed past the Axa offering price in Thursday trading, something that can happen when investors think the company could get a higher offer.
G. Staley Cates, the president of Southeastern Asset Management in Memphis, Mony's largest shareholder with a 4.9% stake, was one person asking why there was no auction to get the best price for the company. He called the lack of an auction "almost egregious" and added, "We think the price is ridiculously low and will certainly vote against it."
Mr. Roth said Mony had discussed the possibility of a sale with other buyers but declined to say how many.
Curtis Jensen, a co-chief investment officer at Third Avenue Management in New York, another institutional investor, said shareholders were "getting their faces ripped off in this transaction." He questioned the decision to take cash instead of Axa stock, which would give investors a chance to participate in anticipated synergies. "In this day and age of corporate malfeasance and management enrichment, this one is right up there," he said.
Mr. Roth responded by referring to the proxy statement, due out in a few weeks, which he said will discuss the deal's history and rationale.
The highly charged conference call also had callers asking for details on how many investors would need to approve the deal for it to go through and even someone asking about the premium cost and liability limits of the company's directors and officers coverage - the insurance that pays the costs of shareholder lawsuits.
Mony had about $55 billion of assets under management and administration at June 30; it owns a group including Mony Life Insurance Co. and The Advest Group. Axa Financial had about $458 billion of assets under management at June 30. Its U.S. operations include the Equitable Life Assurance Society of the U.S., Alliance Capital Management, and Sanford C. Bernstein & Co.
The deal is expected to close in the first quarter.
