NN Group NV agreed to buy Delta Lloyd NV for about 2.5 billion euros ($2.6 billion) after its earlier offer for the Dutch insurer was rejected.

NN offered 5.40 euros a share in cash for Amsterdam-based Delta Lloyd, the companies said in a statement on Friday [Dec. 23]. That’s 31 percent more than Delta Lloyd’s closing share price on Oct. 4, the day before NN’s initial bid of 5.30 euros per share.
NN, based in The Hague, is seeking to boost its scale in the pensions and insurance sectors. Delta Lloyd returned to profit in the first half after cutting costs, and it completed a 650 million-euro rights offer in April to improve capital levels and comply with stricter requirements for insurers introduced by the European Union this year.

“We are highly in favor of the transaction as the acquisition will be highly FCF accretive,” KBC Securities analyst Matthias de Wit wrote in a note on Friday, referring to free cash flow. Given the lack of a counter bid, he recommended that shareholders accept the offer. De Wit raised his share-price target for NN to 41 euros and kept his buy rating.

NN gained as much as 4.5 percent to about 33 euros in Amsterdam, the highest since Jan. 13, while Delta Lloyd fell 0.7 percent to 5.29 euros at 10:06 a.m. The companies expect the deal to close in the second quarter of 2017.

Cost Savings

The transaction is expected to generate annual pretax cost savings of about 150 million euros by 2020, NN said. The company anticipates a return on investment of about 10 percent and a double-digit accretion in dividend per share starting in 2018.

“Consolidation in the insurance sector will bring additional stability in our markets, and will generate a materially higher cash return to our shareholders over time, through the benefits of scale,” NN Chief Executive Officer Lard Friese said in the statement.

NN’s net income in the third quarter rose 33 percent to 436 million euros from a year earlier, the insurer spun off from ING Groep NV said last month. Operating profit declined 19 percent to 319 million euros as the year-earlier figure was boosted by higher private-equity dividends, the company said.

–With assistance from Lukanyo Mnyanda