AXA's U.S. IPO Looks Like the Start of a Long Goodbye -- Heard on the Street

By Paul J. Davies Features Dow Jones Newswires

AXA SA's plan for a multibillion-dollar listing of its U.S. life arm looks like a step toward the exit by the French insurer even if it starts by selling only a minority stake.

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The initial public offering next year could raise more than $4 billion depending on how much is sold, which AXA said it would reinvest in growth areas such as emerging markets. Proceeds will also likely fund share buybacks.

The group said the listing would give more flexibility to the U.S. arm, which includes AXA Equitable and the group's 64% stake in fund manager AllianceBernstein.

But there are other reasons for AXA to consider quitting the U.S. The Labor Department fiduciary rule, which is set to change how people pay for retirement products, will cut AXA's U.S. sales by more than 10%, the group has said. That may change under President Donald Trump, but it remains uncertain.

The other issue is that variable annuities are a capital-hungry product and the U.S. is a mature market. That doesn't fit with AXA's strategy today, which is to focus more on emerging markets and products that need less capital, such as nonlife insurance and health coverage. The U.S. is similar to AXA's U.K. life-insurance businesses, which it sold in several pieces to strategic buyers with the final deal last year.

AXA's U.S. listing may follow the path taken by Dutch group ING Groep NV, which sold its U.S. insurance arm, Voya, starting with an IPO in 2013.

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The plan comes swiftly after AXA replaced the management of AllianceBernstein as part of a move to tie the fund manager more closely to its parent. However, the group said Wednesday that its U.S. listing wasn't a prelude to buying out the 36% stake of AllianceBernstein that it doesn't own.

AXA's stake in the fund manager is worth about $1.3 billion. Its U.S. life business reported a net profit of EUR863 million ($938.5 million) last year, about 15% of the group total. Assume 5% growth this year, slightly slower than 2016's performance but in the middle of AXA's long-term group target, and the U.S. arm is worth about $9.8 billion if priced at 10-times earnings, in the middle of the range for U.S. life companies.

That is about $11 billion all in, roughly one-sixth of AXA's market value. The group will be giving up a chunk of earnings, but from a distant business with little connection to the rest of AXA or its strategy. A full exit would ultimately make sense.

Write to Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

May 10, 2017 08:18 ET (12:18 GMT)