Axa's Lackluster U.S. IPO Fails to Impress Wary Investors

(Bloomberg) -- Axa Equitable Holdings Inc. dropped as much as 2.5 percent in its trading debut after its initial public offering -- the biggest in the U.S. this year -- fell almost $1 billion shy of its target.

After trading below the offering price for most of Thursday, the shares edged up 1.4 percent to $20.28 at 2:23 p.m. in New York. Axa Equitable Holdings, which includes the U.S. operations of French insurance giant Axa SA, raised $2.75 billion, selling 137.25 million shares for $20 each. Initially, the company had tried to get investors to buy the stock at a range of $24 to $27 a share.

The IPO flop marks another blow for Axa Chief Executive Officer Thomas Buberl, who’s trying to re-make Europe’s second-largest insurer. He’s also trying to convince investors of the merits of the pending $15.3 billion takeover of XL Group Ltd. -- his company’s biggest acquisition, which is partially being financed by the share sale.

With the parent company’s need for cash, the current state of Axa Equitable Holdings’s operations and lessened enthusiasm for the broader industry, investors weren’t willing to pay up for the stock.

Axa’s U.S. business includes its U.S. life and savings unit and a 64 percent stake in money manager AllianceBernstein Holding LP. The company 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 Bloomberg Intelligence. While its revenue rose last year, its profit was down by almost a quarter.

Tough Time

Axa has taken the 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. Mark Pearson, chief executive officer of Axa Equitable Holdings, blamed broader investor attitudes about the industry for the shortfall in where the IPO was priced.

“During the roadshow we saw very clearly sentiment moved against the industry,” he said in an interview. Insurance companies in the S&P 500 Index fell 2.5 percent from the day before the IPO marketing began through pricing day.

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. Outside the U.S., the only bigger IPO was Siemens Healthineers AG’s March offering in Frankfurt, which raised 4.04 billion euros ($4.8 billion).

Falling Short

Before the IPO, Axa itself 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, closing little changed in Paris trading on Thursday.

“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.

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.
 
Read a Bloomberg Opinion on how the XL deal has irritated Axa’s shareholders

“For the XL deal, the effect is probably neutral,” because Axa also obtained cash from restructuring its financial links with the U.S. business, Graham said. Axa got $3.2 billion from that restructuring, and the funds were earmarked for the deal.

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

‘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.

Axa Equitable Holdings’ chief Pearson says carving the company off of its European parent will also lead to changes in the company’s investment strategy. Insurers in the European Union have been subject to stricter capital regulations called Solvency II, which have generally discouraged those companies from holding riskier assets. With the IPO, Axa Equitable Holdings will be on a more level playing field with U.S. insurers, who aren’t subject to those regulations, he said.

“Investment strategies were really influenced by Solvency II,” Pearson said. “So you’ll see us reposition the investment portfolio, less Treasury and more higher-grade corporates.”

Axa Equitable Holdings is trading on the New York Stock Exchange under the symbol EQH. Morgan Stanley, JPMorgan Chase & Co., Barclays Plc and Citigroup Inc. led the offering.

©2018 Bloomberg L.P.