Fosun International will acquire 52.31% stake in Phoenix Holdings, the fourth largest insurance company in Israel, from the Delek Group for about US$461.6 million. Plus interest accrued before the deal’s closing date, the total cost could be at about US$489 million, according to a filing to the Hong Kong stock exchange over the weekend.
The latest acquisition comes amid the Chinese private company’s strategy to transform itself from an industrial conglomerate to an insurance-focused investment firm, as the insurance business represents a key source of funding to fuel the company’s investment and expansion.
Phoenix Holdings had total assets of US$26.53 billion and net assets of US$1.03 billion as of end 2014.
Described as the Chinese version of Berkshire Hathaway, Fosun started in 2014 to seek low-cost insurance capital from around the world to invest in industries that relate to China’s high-growth sectors, such as healthcare, consumption, logistics, urban development and internet, says CICC analysts Sarah Tian Tian and Junhua Mao.
Fosun started its insurance franchise in 2007 when it bought a domestic insurer Yong’an P&C. It then formed a joint venture (JV) with the International Finance Corporation (IFC) known as Peak Reinsurance in 2012. Later that year, Fosun entered another joint venture with Prudential Financial, Inc (PFI) known as Pramerica-Fosun Life Insurance.
But 2014 was the year Fosun aggressively expanded in overseas markets by acquiring three insurance companies, namely: Caixa Seguros e Saude SGPS SA in Portugal, and two US-based firms including the Meadowbrook Insurance Group as well as Ironshore which provides insurance in specialized areas including environmental pollution, political risk and terrorism.
Fosun plans to buy five insurance firms in 2015, totalling about US$2.4 billion. Before the acquisition of Caixa Seguros, insurance accounted for about 34.8% of Fosun’s total assets. CICC expects the number to rise to 40%-50% by 2015 and reach 70% in the long term. Berkshire Hathaway has about 63.5% of its asset in insurance.
In 2014, revenues of Fosun’s insurance units increased dramatically because of the three acquisitions by 2742% to 7.9 billion yuan (US$1.27 billion), accounting for 12.7% of its total revenue. Net profits of insurance business rose by 119.4% to 1.15 billion yuan, contributing 16.8% of the company’s total profits.
Stable insurance income provide Fosun sufficient capital to conduct investments in both domestic and overseas markets. High-profile deals in recent years include strategic investment or acquisitions of Focus Media, Folli Follie, Club Med, PE/VC investments in Alibaba, and secondary market investments in Perfect World, Minsheng-H, New China Life Insurance-H, Tom Tailor and Thomas Cook.
Trading of Fosun International shares in Hong Kong was flat one day following the acquisition announcement, slightly gaining 0.61% to close at HK$19.86 (US$2.56).
