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Tokio Marine to buy Delphi Financial for $2.66B

by Laura Board | Published December 21, 2011 at 10:47 AM

Japanese insurer Tokio Marine Holdings Inc. said Wednesday, Dec. 21, it would buy Delphi Financial Group Inc. for $2.66 billion.

Tokio Marine has agreed to offer $43.875 per Delphi Class A stock, a near-73% premium to Delphi's Tuesday closing price on the New York Stock Exchange. It will pay $52.875 per share for the Class B stock held by Delphi founder, chairman and CEO Robert Rosenkranz.

Tokio is offering an apparently generous multiple of 1.5 times Delphi's fully diluted book value per share of $29.31 as of the end of September and has swooped just as Delphi and many other listed insurance companies languish below book value.

The transaction takes Tokio into the U.S. life insurance market for the first time and supports an international expansion push that has included its $4.7 billion purchase of Philadelphia Consolidated Holding Corp. three years ago and its entry into the Lloyd's of London insurance market through £442.2 million ($695.9 million) purchase of Kiln Ltd. in March 2008.

The acquisition is the latest in a series of overseas acquisitions by cash-rich Japanese companies seeking growth outside their sluggish home market. These have included Takeda Pharmaceutical Co. Ltd.'s €9.6 billion ($12.6 billion) acquisition of Swiss drug giant Nycomed International Management GmbH, which closed in September.

Delphi was founded in 1987 by Rosenkranz, who owns just under half of the company's voting rights. Based in Wilmington, Del., Delphi has a particular focus on employee benefits.

It had premium and fee income of $1.42 billion in 2010 and net profit of $174 million. Net assets were $1.595 billion as at December 2010.

Tokio said the Delphi purchase would have lifted the proportion of business it derives from North America to 48% in 2011 from 36%, while international earnings would have accounted for 46% of all earnings, up from 37%.

Tokio had a market value of more than ¥1.4 trillion ($18 billion) as of Wednesday. It had premium income in fiscal 2011 of ¥1.36 trillion, mainly from nonlife insurance.

A U.K. unit of Tokio Marine in July sought creditor protection under a Chapter 15 bankruptcy proceeding in New York.

A Lazard team including Al Garner, Gary Parr and Joseph Cassanelli advised a special committee of independent board members at Delphi. That committee took legal advice from a Cravath, Swaine & Moore LLP team including Scott Barshay, Andrew Thompson, Lauren Angelilli and Eric Hilfers.

Morris, Nichols, Arsht & Tunnell LLP provided external legal counsel to Delphi.

Tokio Marine's financial adviser was a Chicago-based Macquarie Group Ltd. team of James Anderson, Pete Nero, Anthony Schwartz, Robert Tardella and Jeremy Feit. Tokio Marine took legal counsel from Sullivan & Cromwell LLP's Robert DeLaMater and Melissa Sawyer. Both the Macquarie bankers and the Sullivan & Cromwell lawyers had advised Tokio on the Philadelphia Consolidated purchase.

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Tags: Delphi Financial Group Inc. | financial services | insurance | insurers | Tokio Marine Holdings Inc.

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Tokio Marine to buy Delphi Financial for $2.66B

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