Dai-ichi deal fuels talk of Challenger takeover

Japanese groups are keen to expand in the Australian insurance industry. Picture: AFP.

It may have only been 15.1 per cent that Japan’s Dai-ichi was buying in Challenger this week after its country rival, MS&AD, sold its interest.

However, there is a view that there is more to the transaction.

The deal involved Dai-ichi buying the stake at $8.46 a share, outlaying about $884m, at a 53 per cent premium to Challenger’s April 4 closing price.

But some think it will creep up the register from here and gain control.

Dai-ichi could also snap up the remaining shares in Challenger held by private equity firm Apollo, believed to be a seller.

Analysts at Citi say they had argued for some time that Challenger looked inexpensive.

“The market will no doubt speculate as to Dai-ichi’s longer-term intentions with it often taking an initial stake in companies before eventually proceeding to a full takeover,” they said.

However, Dai-ichi had said it has no current intention to make a bid, the analysts said.

Dai-ichi is the second-largest insurer in Japan behind Nippon Life, and it is eager to gain market share.

Nippon owns the former MLC life insurance business and part of Resolution Life, and Dai-ichi wants to take its rival on through growth. Both are looking for growth globally because of a sluggish economy at home and a declining population.

Challenger’s share price is down about 13 per cent in the past year, but over five years it is up almost 23 per cent. It closed higher on Tuesday.

In 2018, Dai-ichi won the competition to buy Suncorp’s life insurance business, outlaying $725m for the division in its quest to expand. Ironically, Dai-ichi had been up against MS&AD in that contest.

But for Dai-ichi back in 2018, the opportunity to continue to distribute the life insurance products through Suncorp’s banking networks was attractive, providing access to Suncorp’s 9 million customers.

The life insurance industry has been reeling from increased customer claims and policy lapses, but groups such as life insurers with large cash piles have done well out of high interest rates in recent years.