AMSTERDAM Dutch insurer Delta Lloyd (DLL.AS) has reached agreement to be taken over by bigger rival NN Group (NN.AS), the two companies announced on Friday, after NN nudged up its earlier unsolicited offer by 1.9 percent to 2.5 billion euros ($2.61 billion).
NN Group said the deal would cement its leading position in life insurance in the Netherlands, increase assets under management by 60 billion euros, and lead to "double-digit" dividend increases starting in 2018.
For Delta Lloyd the agreement caps a turbulent two-year period which included the departure of top executives after clashing with the Dutch Central Bank, and two new share issues to strengthen its capital base. Delta Lloyd shares are down more than 50 percent since July 2015.
"Today the uncertainty around our company has come to an end," Delta Lloyd Chief Executive Hans van der Noordaa told investors on a conference call.
Delta Lloyd, which had rejected an initial unsolicited 5.30 euros per share offer as insufficient, accepted the current offer of 5.40 per share in cash.
In a statement, Delta Lloyd acknowledged that continuing capital concerns influenced its decision to accept NN Group's offer.
NN Group's offer equates to a 55 percent premium to Delta Lloyd's average share price in the three months prior to NN's initial bid on Oct. 5. Delta Lloyd shares closed on Thursday at 5.33 euros and were trading at 5.297 euros at 0922 GMT on Friday.
The deal is expected to close in the second quarter of 2017, pending regulatory approval.
NN Group said it expects a 10 percent return on investment on the deal, which would reduce its solvency ratio to 185 percent of the minimum requirement on a pro-forma basis in the third quarter. As of the second quarter, NN Group's solvency ratio was 252 percent.
"Our balance sheet will remain strong," NN Group's chief executive Lard Friese told reporters on a conference call. He said the combination would generate 150 million euros in synergies by 2020.
In rejecting NN's earlier offer, Van der Noordaa had estimated synergies at 200 million euros.
Asked whether Delta Lloyd shareholders would support the deal at 5.40 euros per share after Van der Noordaa had said the 5.30 offer "significantly" undervalued Delta Lloyd, he said he was confident they would.
"It's not only about price," Van der Noordaa said, but the need for Delta Lloyd to retain a competitive position on the Dutch market, which regulators have said is in need of consolidation.
Van der Noordaa said he would step down as CEO of Delta Lloyd after completion of the deal.
In a note, analysts from Bernstein said they thought the deal is likely to succeed on current terms.
"We think it's possible that another bidder come in, but unlikely as NN represents the best strategic fit for Delta Lloyd," they said in a note.
A source close to the deal told Reuters that Dutch insurer ASR (ASRNL.AS) had considered a bid for Delta Lloyd but quickly decided it was too risky. Chinese insurer Anbang [ANBANG.UL], which owns Dutch insurance company Vivat, considered a bid but dropped the idea after facing opposition from regulators.
Delta Lloyd was advised by Goldman Sachs and Bank of America Merril Lynch, while NN was advised by Morgan Stanley and JPMorgan.
(Story corrects first paragraph to read 1.9 percent, not 0.9 percent.)
(Editing by Adrian Croft, Greg Mahlich)