Ping An buys 50% of Fortis Investments

The Chinese insurance company pays $3.32 billion for the stake in Fortis's asset management subsidiary, gaining access to a business with $378 billion of assets under management.
Leading Chinese insurance company, Ping An Insurance announced late on Wednesday last week that it will pay Ç2.15 billion ($3.32 billion) for 50% of Fortis Investments, the asset management business of Belgian-Dutch financial services firm, Fortis.

Fortis Investments, which will be rebranded Fortis Ping An Investments, is the global asset management arm of the Fortis group. It is also the company in which the ABN AMRO asset management unit Fortis bought will be added. The combined Fortis-ABN business has assets under management of Ç245 billion effective April 2008, up from Ç133 billion for Fortis Investments alone at the end of 2007. The price Ping An is paying for 50% translates on a firm value basis to 1.75% of the enhanced AUM of Ç245 billion.

Fortis, which is being advised on the deal by Merrill Lynch, saw its share price close up 1.82% to Ç15.09 on Thursday.

Ping An announced the decision to buy 50% of Fortis the same day it revealed its results for calendar 2007. Ping AnÆs net profit increased 140% year-on-year to Rmb19 billion ($2.72 billion) on a revenue growth of 55% to Rmb137 billion. Ping An's life, property and casualty insurance, banking, and securities businesses benefited from the strong performance of the economy in China.

Ping An is being advised by JPMorgan on the deal. Its H-shares closed down 6% at HK$49.90 ($6.42) on March 20.

The board of directors of Fortis Ping An Investments will have six non-executive directors, two executive directors and four independent directors. Fortis and Ping An will each nominate three non-executive directors and two independents, the companies said in a joint statement.

ôBy elevating our core capabilities in asset management in the domestic market, this transaction supports the implementation of our strategy, focusing on insurance, banking and investments/asset management," added Ping An chairman and CEO Peter Ma Mingzhe.

Fortis CEO Jean Paul Voltron highlighted the access that Fortis will gain to the fast-growing Chinese and Asian markets and the fact that Fortis will now be in a position to leverage both the Ping An brand and distribution for the benefit of clients. One of the biggest benefits for Fortis, specialists comment, is the much-needed capital injection Ping An will make.

Fortis Investments has a goal that Asia should account for 30% of revenue by 2010 and around the same time Asia should become the biggest contributor to the firm's business. The current deal will help Fortis achieve these goals.

In November 2007, Ping An paid Ç1.81 billion for a 4.18% stake in Fortis group, in a deal which saw the Chinese company become the biggest single shareholder in the Belgian-Dutch firm. Ping An subsequently raised the stake to 4.99%. All shares were acquired on the open market thus did not enrich FortisÆs coffers, but the signalling effect on other investors was positive for Fortis.

Specialists commented in November that Fortis was keen to induct an investor who was strategic in nature rather than a pure financial investor. Fortis invited Ping An to nominate a director to its board and a meeting for shareholder approval for the Ping An nominee to join the board is scheduled for April. Analysts also speculated that Ping AnÆs investment was a pre-cursor to further collaboration between the Chinese and European firms.

Ping An recently received shareholder approval for a fundraising of up to $17 billion by way of shares and bonds with warrants. One of the stated aims of the fundraising is to build a war chest for acquisitions. Putting its money to work in strategic investments û rather than investing further in assets in China û is generally seen as welcome diversification for the Chinese insurance company, as is the ability to acquire technology and know-how from partnering with an established player such as Fortis.
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