Alleanza deal sees Generali tighten its grip in Italy

A significant change in Italy’s insurance
industry has been set in motion with the announcement by Generali
Group that it is to acquire full control of Alleanza, a life
insurer in which it already has a 50.4 percent stake.

In the non-cash deal, Alleanza minority
shareholders will receive 0.33 ordinary Generali shares of for each
ordinary Alleanza share they own. Generali noted that this implies
a 6 percent and 13 percent premium on the last three- and six-month
average exchange ratio, respectively.

Upon completion of the acquisition Generali
intends merging Alleanza and Toro Assicurazioni, a wholly-owned
composite insurance subsidiary acquired in 2006 for €3.9 billion
($5 billion).

In a second stage of evolution, the merged
entity is to be absorbed fully into Generali itself.

Based on 2007 results, the combined Alleanza
and Toro will generate total annual premium income of €5.15
billion, of which €3.4 billion will be from life insurance
operations, €1.06 billion from vehicle insurance and €690 million
from other general insurance.

Of total life insurance premium income, by far
the greater portion, €2.8 billion, was generated by Alleanza while
Toro was responsible for €600 million.

Merger of the two insurers will produce
numerous synergies, stressed Generali, including cross-selling
products to the new unit’s 3.3 million customers via a distribution
network of 18,000 people, and some 2,000 points of sale.

Generali stressed that Toro’s activities are
more concentrated in north-western Italy, the country’s wealthiest
region, while Alleanza’s has a strong presence in other
regions.

This, said Generali, provides “substantial
growth potential” for increased life insurance sales via Toro.

Generali estimates that cross-selling will add
€100 million in pre-tax and €69 million in after-tax profits by
2012.

Cost savings are also anticipated from staff
and services rationalisation. Generali anticipates total cost
savings of €60 million in pre-tax and €40 million in after-tax by
2012.

In addition, Generali anticipates that the
merger will result in annual tax savings of €40 million by 2012,
bring total merger synergies to €200 million pre-tax and €150
million after tax.

As a spin-off from the acquisition of full
control of Alleanza Generali will assume full control of the 50
percent stake held via Alleanza in Intesa Vita, a 50:50
bancassurance joint venture (JV) with Intesa Sanpaolo, Italy’s
biggest bank.

The JV’s future is in the balance with
Generali having the option to sell its stake to Intesa
Sanpaolo.

A problem with the JV is a ruling made at the
time of BancaIntesa’s and Sanpaolo’s merger to form Intesa Sanpaolo
in 2006 , restricting it to 1,500 of the bank’s 4,000 branches.

An announcement on the JV’s future is
anticipated shortly from Generali.