By daljit dhesi
Pacific Insurance Bhd, which is wholly owned by the Fairfax Group of Canada, has completed the due diligence on the general insurance business of MCIS Insurance Bhd, according to sources.
It is learnt that a team has been set up in Pacific Insurance to oversee the integration of the merger of the general insurance operations of both companies.
According to sources, both parties were still negotiating the price in the proposal that would see the merger of the general insurance operations of Pacific Insurance Bhd with that of MCIS Insurance.
MCIS Insurance could likely hold a minority stake in the enlarged entity because Pacific Insurance was said to be funding the deal with a combination of cash and shares.
Fairfax group made its entry into the Malaysian insurance business in 2011 when it acquired Pacific Insurance from PacificMas Bhd for RM216.5mil that tagged the value at 1.6 times book.
MCIS Insurance has also seen changes in its shareholding since April this year with the emergence of the Sanlam Emerging Markets Proprietary Ltd (SEM) as its major shareholder.
A unit of South Africa-based Sanlam Ltd, SEM made an offer to acquire a 51% stake in MCIS Zurich (now MCIS Insurance) from Koperasi MCIS for about US$118.4mil (RM387.6mil) or at a price-to-book value of 1.7 times.
The deal, which has yet to be completed, has seen Zurich Asia exiting from MCIS Zurich by selling its 40% stake in the latter. Koperasi MCIS is currently the largest shareholder in MCIS Insurance.
On May 5, SEM completed the purchase of the 40% interest from Koperasi MCIS.
SEM is now in the process of undertaking a mandatory take-over offer for the rest of the shares in MCIS Insurance and wants to see its stake increase to 51%.
Koperasi MCIS will divest a portion of its stake in MCIS Insurance to SEM if the MGO does not yield sufficient acceptance from minorities.
Upon the acquisition of the 51% stake, SEM will become the largest shareholder of MCIS Insurance.
However it would need to divest its interest in the general insurance business of MCIS Insurance because the Bank Negara rules do not allow an insurer to hold more than one licence.
In this respect, SEM already has an interest in Pacific & Orient Insurance where it acquired a 49% stake in Pacific & Orient Insurance for RM270mil which translated to 2.5 times price to book.
The valuation was considered among the highest in the industry where general insurance companies normally transacted at less than 1.8 times book value.
Most general insurance companies are being transacted at valuations of between 1.2 to 1.8 times book value, depending on the customer base. If a general insurer has a captive business such as a banking group, it would command a higher premium, according to analysts.
At press time, both Pacific Insurance and MCIS Insurance could not be reached for comments.
Source The Star
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