AXA and UAP, two of France's largest insurance groups, yesterday announced plans to merge to create the world's second-largest insurance company. UAP is the parent company of New Ireland in the Irish market.
The transaction will create a company with turnover of more than 300 billion French francs (£35.7 billion), some 80,000 salaried staff and a stock market capitalisation of Ffr100 billion (£12 billion). The two companies said the tie-up would also produce the world's largest asset manager, "quite clearly" ahead of its rivals including Fidelity of the US.
Mr Claude Bebear, Axa's chairman, who is widely expected to be the driving force behind the new company, said the merger was "the deal of the century in French insurance". He suggested it would help erode France's sometimes weak reputation in the financial services sector.
The deal continues a trend towards consolidation in the world insurance industry. In May, two British insurers, Sun Alliance and Royal Insurance, merged in a £6 billion sterling deal.
In terms of geographic coverage, the long-rumoured merger of the two French groups appears to make good strategic sense, combining Axa's strength in North America and Asia with UAP's European prominence.
Europe will account for about two-thirds of the turnover of the combined group. It will be the largest insurer in Belgium, the second-largest non-life insurer in Germany and the third-biggest life insurer in Britain and Ireland.
Under the proposed deal, UAP shareholders would be able to exchange 10 UAP shares for four Axa shares and four so-called "guaranteed value" certificates. Bearers of these certificates would receive an additional payment if Axa shares were trading at below Ffr392.50 a share in June 1999. The payment would amount to the difference between Ffr392.50 and the actual share price up to a maximum of Ffr80 a share. The certificates themselves will be listed.
Mr Bebear said he was confident the group should be able to realise at least Ffr500 million of cost savings from eliminating overlapping activities in 1998, rising to about Ffr1 billion in 1999. This was in spite of a pledge to make no "collective redundancies" in France.
