IAG shares jump on $855 million RACQ deal
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More news: IAG shares have jumped more than 5% to $8.59 after the insurance giant said it would acquire 90% of Royal Automobile Club of Queensland's (RACQ's)insurance underwriting business and sign an exclusive 25-year distribution agreement for $855 million.
IAG also has an option to acquire the remaining 10% stake two years after completion of the deal on similar terms.
IAG to buy 90% of RACQ insurance underwriting business
The news: Insurance giant IAG has agreed to buy 90% of Royal Automobile Club of Queensland's (RACQ's) existing insurance underwriting business for $855 million, as part of a long term strategic alliance.
The numbers: Under the deal, IAG will pay $522 million for the stake in RACQ Insurance and also make an upfront cash payment of $333 million for entering into an exclusive 25-year distribution agreement.
IAG has an option to acquire the remaining 10% stake two years after completion of the deal on similar terms. RACQ can choose to receive cash or equity in IAG as consideration on exercise of the option.
IAG said the RACQ portfolio is expected to add about $1.3 billion to its gross written premiums and it will incur customary one-off transaction and integration costs of $70 million over two years. The transaction will be funded from its surplus capital.
The context: IAG said the transaction is expected to be earnings per share accretive in the first full year of ownership, with synergies — predominantly by adopting IAG's reinsurance strategy for the RACQ portfolio — expected to exceed $50 million per annum.
RACQ is Queensland's largest club, and provides services including roadside assistance, insurance, banking and travel to its 1.7 million members.
What they said: “RACQ will maintain brand and customer relationships, while leveraging IAG’s scale and financial strength, best-in-class technology for claims, policies and pricing, customer orientated claims experience and underwriting expertise,” IAG managing director Nick Hawkins said.
The source: ASX announcement
