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Baloise Holding AG has become one of the most-discussed takeover candidates in the European financial sector, after agitation by an activist investor triggered top industry players to take fresh looks at the Swiss insurer.

Zurich Å˽ðÁ«´«Ã½Ó³»­ Group AG, AXA SA and Allianz SE are among parties that have been studying whether they would want to bid for Baloise or parts of its business if they come up for sale, the people said. Some of them have spoken to potential advisers as they conduct a preliminary evaluation of the merits and feasibility of a deal, according to the people, who asked not to be identified because the information is private.

Their analysis comes after activist investor Cevian Capital built up a 9.4% stake in Baloise, making it the insurer’s largest shareholder. Cevian has spoken to some industry players to gauge their appetite for a deal, the people said. Representatives for Allianz, AXA, Cevian and Zurich declined to comment. Zurich Å˽ðÁ«´«Ã½Ó³»­ Chief Executive Officer Mario Greco said on a call Thursday [Nov. 7] with journalists that the company is not preparing an offer for Baloise and hasn’t had any contact. (Editor’s note: Bloomberg first published this article on Nov. 6 and updated it on Nov. 7).

Cevian has been pushing Baloise to focus on its core Swiss business and sell other assets, such as its German unit and regional lender Solothurner Bank, Bloomberg News has reported. If Baloise wants to double down on the Swiss market, it could consider a combination with Mobiliar, some of the people said. A spokesperson for Mobiliar declined to comment.

Rich Valuation

Some in the market are betting that Baloise will follow a similar path to RSA Å˽ðÁ«´«Ã½Ó³»­ Group Plc, where the Swedish activist took a stake and eventually saw the company’s sprawling operations broken up with Intact Financial Corp. and Tryg A/S buying different pieces. That deal came after Zurich Å˽ðÁ«´«Ã½Ó³»­ abandoned a £5.6 billion ($7.2 billion) bid for RSA in 2015, with Allianz and Axa also named as possible suitors at the time.

Baloise could be a “neat strategic fit” for major insurers in Europe and would be unlikely to trigger regulatory competition concerns, Keefe Bruyette & Woods analyst William Hawkins wrote in a research note. Still, there could be material cultural sensitives to overcome due to Baloise’s overlaps with its competitors, he wrote.

“We would expect a competitive auction for this rare asset, remembering its Swiss core also comes with useful scale in Germany and Belgium as well,” Hawkins said. “Any transaction could form part of a gradual shift in industry capital priorities from repatriation to redeployment.”

Shares of Baloise have gained 30% in Zurich trading this year, giving the firm a market value of about 7.9 billion Swiss francs ($9 billion). Its already high valuation could be a hurdle to any deal. Baloise now trades at 18.2 times this year’s estimated earnings, compared with a median 10.2 times for European-listed insurers, according to data compiled by Bloomberg. That means any buyer would need to be able to extract significant synergies for a deal to make sense.

Bolt-On Deals

Baloise became vulnerable to activists after shareholders in April abolished a rule capping any single investor’s voting rights at 2% regardless of the amount of stock they owned. The removal of those curbs made it easier for an investor holding a significant stake to push for changes.

Zurich CEO Greco has mostly focused on smaller bolt-on acquisitions since taking the reins in 2016. In June, the company agreed to buy American International Group Inc.’s global travel insurance business for $600 million. It also signed an agreement to purchase a majority stake in India’s Kotak General Å˽ðÁ«´«Ã½Ó³»­ Co.

AXA announced in August it’s in exclusive talks to sell its asset management business to BNP Paribas SA for €5.1 billion ($5.5 billion). CEO Thomas Buberl has said proceeds from the divestment could give it the funds to grow its core operations through acquisitions.

Allianz CEO Oliver Baete said recently that investors shouldn’t expect a big change in his acquisition policy when he unveils new targets at a capital markets day in December. In the nine years that he’s been in the role, Baete said he hasn’t seen a big takeover opportunity that would have made sense. That said, the German insurer was beat out by Axa on the French firm’s $15.2 billion deal for XL Group Ltd. in 2018.

Refocusing Business

Baloise could also opt to continue its own revamp. In September, the firm pledged to “refocus” its business in a strategy update that stopped short of the major asset disposals expected by Cevian.

The company said it would increase its dividend payout ratio, end investments in non-core sectors and cut 250 jobs as part of broader cost-saving measures. CEO Michael Mueller said at the time that Solothurner Bank is an integral part of the Baloise business and added that regional businesses are vital parts of Baloise’s future, even though the German unit must improve its cash generation. Since then, it’s made a small divestment, selling its holding in digital insurer Friday to Allianz.

“In September, we presented our refocusing strategy,” a representative for Baloise said in response to Bloomberg queries Wednesday. “This shows how we can independently create added value for all stakeholders in our markets and remain an attractive investment for our shareholders in the long term.”

Photograph: A Swiss flag flies on the banks of the Rhine river in Basel, Switzerland. Photo credit: Gianluca Colla/Bloomberg

Topics Carriers Europe