SYDNEY Australia's biggest travel insurance provider, Cover-More Group CVO.AX, said on Monday it had agreed to a A$741 million ($551.16 million) takeover offer from Switzerland's Zurich Insurance Group (ZURN.S), the latest of a series of Australian insurance deals.
Global buyers have been drawn to the broader Australian insurance sector, where returns on equity are healthy and banks have been selling insurance assets due in part to regulatory changes requiring them to hold more capital.
Zurich had already bolstered its presence in Australia in March through the purchase Macquarie Group's (MQG.AX) life insurance division for an undisclosed sum.
Other recent transactions include National Australia Bank's sale of 80 percent its life insurance division to Nippon Life for A$2.4 billion in October.
Cover-More shares surged 43 percent to A$1.875 after Zurich agreed to acquire the travel insurer for A$1.95 cash a share, a 48 percent premium to the target's last closing price of A$1.32 on Friday.
The company floated by private equity firm Crescent Capital in December 2013 at A$2 a share.
Noel Webster, a senior portfolio manager at BT Investment Management, which owns 5.7 percent of Cover-More, said the premium appeared reasonable but there was potential for a counter-bid.
"Maybe this draws attention to the fact that there is quite good market share and global positioning," Webster told Reuters.
Bell Potter analyst John O'Shea said Cover-More was appealing as a growth business given increasing outbound travel volumes in Australia, driven in part by low airfares.
Cover-More Chairman Louis Carroll said the board agreed the sale at a significant premium to the market price was an attractive outcome for shareholders. Zurich had proposed to operate Cover-More as a discrete business and retain the existing management team, he added.
The deal will be executed via a scheme of arrangement requiring the approval of 75 percent of Cover-More shareholders at a meeting the insurer said was expected to be held in late March or early April 2017. Zurich has the right to match any competing offers and will receive a 1 percent break fee if the deal does not proceed.
Cover-More, which is an insurance marketer but not an underwriter, on Friday said Warren Buffett's Berkshire Hathaway Inc (BRKa.N) would be its new underwriter in Australia and New Zealand under a five-year contract.
The contract contains a change of control clause that would allow Berkshire Hathaway to exit the contract in the event the Zurich bid is successful, a Cover-More spokesman said, adding that Zurich would become the underwriter if that occurred.
($1 = 1.3444 Australian dollars)
(Editing by Lincoln Feast)