(Reuters) - Denmark’s largest insurance company Tryg (TRYG.CO) said on Monday it agreed to buy unlisted competitor Alka Forsikring for 8.2 billion Danish crowns ($1.31 billion) strengthen its presence in the property and casualty (P&C) insurance markets.
Alka, founded in 1944, is the eighth largest P&C insurer in Denmark. Two analysts said the deal could boost Tryg’s market share to about 22 percent from 18 percent now, cementing its place as market leader. Topdanmark (TOP.CO) is second with 17 percent.
Shares in Tryg rose as much as 4.9 percent, reaching levels last seen in April 2015. By 0928 GMT, they were up 3.7 percent.
KBW analyst Michele Ballatore, who has a “market perform” rating on the stock, said the deal would mean Tryg could apply its “superior cost efficiency” skills to Alka, adding that she had a positive long-term view of the deal.
Tryg said it has identified 300 million crowns per annum in merger benefits to be delivered by 2021. It said it expected the deal to add to earnings from 2019 with a high single-digit contribution to earnings by 2021.
Ballatore said Alka’s ties with Danish trade unions would help Tryg, which said it expected to benefit from Alka’s partnerships with unions to open up “significant opportunities to expand the business.”
Alka is owned by Danish trade union movement, companies affiliated with the unions, Folksam and its employees.
RBC Capital and UBS analysts said the price of the deal was justified by Alka’s strong capital levels. Excess capital that comes as part of the deal could be used to help finance the transaction, RBC Capital analysts said in a note.
The total deal value includes excess capital of 2.5 billion crowns, valuing Alka’s operations at 5.7 billion crowns, Tryg said.
Tryg also plans an equity placement of up to 10 percent of its outstanding shares to fund the deal. Tryg’s majority owner TryghedsGruppen will subscribe to 60 percent of the shares.
Reporting by Thyagaraju Adinarayan; Editing by Stephen Coates and Edmund Blair