Axa's IPO Flop Shows Investor Dismay at Insurer's Strategy

(Bloomberg) -- Investors gave a resounding thumbs-down to the partial spinoff of Axa SA’s U.S. business, dealing a blow to boss Thomas Buberl’s strategy for the French insurer.

The sale of part of its U.S. operations raised almost $1 billion less than the company had hoped for, amid concern among shareholders at the $15.3 billion takeover of XL Group Ltd. which the IPO will help finance.

“Shareholder frustration with Axa’s CEO is likely only to have increased after the sale,” Bloomberg Intelligence analysts Charles Graham and Jonathan Adams said in a note. The XL acquisition offers “limited synergy benefits, and in our view, increases underwriting risk.”

The buyout is supposed to help Axa shift toward property and casualty insurance just as premiums rise after last year’s hurricanes and California wildfires, and also to reduce its exposure to savings activities in the U.S.

Axa's IPO Flop Shows Investor Dismay at Insurer's Strategy

Yet, shareholders were less than enthusiastic about the deal from the start: the Paris-based company fell the most since June 2016 after the announcement in early March, with analysts including Daniel Bischof of Baader Helvea AG complaining about the high price Axa is paying for XL.

“We are fully in line with our financing needs for XL,” a spokesman for Axa said by email.

Even before the IPO, Axa was this year’s second-worst performer in the Bloomberg Europe 500 Insurance Index, shedding more than 9 percent of its value. Shares showed a muted reaction to the Wednesday sale, and were up 0.3 percent as of 3:52 p.m. in Paris trading.

Falling Short

Axa Equitable Holdings Inc. sold 137.25 million shares at $20 each in the IPO to raise $2.75 billion. That’s well short of the $3.7 billion it was trying to raise at the high end of the $24 to $27 share-price range marketed to investors. The shares begin trading Thursday on the New York Stock Exchange under the symbol EQH.

The result of the IPO is “certainly a setback” for Buberl, “and will increase further shareholder concerns about the direction he is taking the group in,” according to BI’s Graham. “But for the XL deal, the effect is probably neutral” because Axa also obtained cash from restructuring its financial links with the U.S. business, he said. Axa got $3.2 billion from that restructuring, and the funds were earmarked for the XL deal.

The business, valued by the share sale at $11.2 billion, is made up of the U.S. operations of Europe’s second-largest insurer, including its U.S. Life & Savings unit and a 64 percent stake in money manager AllianceBernstein Holding LP.

Morgan Stanley, JPMorgan Chase & Co., Barclays Plc and Citigroup Inc. led the IPO.

Axa’s U.S. business was the third-largest seller of variable annuities in the U.S. last year, according to industry group Limra. Those products require a lot of capital and can be volatile when markets swing. The company has a relatively high level of market risk, according to BI. While its revenue rose last year, its profit was down by almost a quarter.

A small consolation to Axa Chief Executive Officer Buberl is that the listing of about 20 percent of Axa Equitable Holdings was still the biggest IPO in the U.S. this year.

Even with the lowered price, the IPO topped Pagseguro Digital Ltd.’s $2.6 billion offering in January and iQiyi Inc.’s $2.4 billion listing in March, data compiled by Bloomberg show. The only bigger IPO was Siemens Healthineers AG’s March 15 offering in Frankfurt, which raised 4.04 billion euros ($4.8 billion).

‘Great Restructuring’

The Axa deal is part of what Wells Fargo & Co. analyst Sean Dargan called a “great restructuring” of the insurance industry as companies increasingly seek to spin off or take units public and offload business units. The sweeping changes have been partly driven by a focus on improving returns, Dargan wrote in a January note.

Last year, MetLife Inc. spun off Brighthouse Financial Inc., a U.S. business that sells annuities and life insurance to individuals. The stock has fallen more than 25 percent since it started trading in July. Voya Financial Inc. offloaded a block of annuities to buyers that included private equity firm Apollo Global Management LLC.

Yet Axa took its U.S. business public at a tough time for the industry. Life-insurance companies have been hurt by low interest rates, which curtail returns, and the industry has underperformed the broader S&P Index over the past year.

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