AXA acquires Winterthur Life for £5.9bn

The French financial services giant AXA made a leap towards its goal of becoming Europe's largest insurer yesterday, as it agreed to pay Credit Suisse 13.4bn Swiss francs (£5.9bn) for its rival Winterthur Life.

The deal will bulk up AXA's position within a number of European markets, including the UK, as well as in Asia. Winterthur's chief executive, Leonard Fischer, confirmed yesterday that there were likely to be job cuts as a result of the takeover, but said it was not clear whether any of these would be in the UK.

AXA employs about 13,400 people in the UK across its life and pensions, investment management and general insurance divisions. Winterthur has 13,000 staff of whom about 770 are employed in its British life and pensions operations. Analysts and shareholders welcomed the deal, claiming Credit Suisse had secured a good price for the business, which it acquired in 1997.

"In terms of their European strategy, it's a good deal," said Olivier de Guerre, the head of the Paris-based investment company PhiTrust Finance, a shareholder in AXA. "The price and capital increase seem reasonable."

Nick Holmes, a Lehman Brothers analyst, said: "We believe it will turn out to be another of AXA's value-creating acquisitions."

AXA said it will pay Credit Suisse Sfr12.3bn in cash, funded by a €4.1bn (£2.8bn) share issue and €4.8bn debt-raising initiative. As part of the deal, it will refinance some Sfr1.6bn of Winterthur's debt.

The French company said it expected the deal to generate annual cost synergies of €280m by the end of 2008, adding that it expected the one-off costs of integrating the business to be about €520m.

The Credit Suisse chief executive, Oswald Grübel, said it planned to reinvest the proceeds from the sale back into the business, ruling out any substantial acquisitions. "Our growth plans are focused on organic growth opportunities and selected acquisitions and joint ventures in our investment banking, private banking and asset management businesses," he said. "However, we have no intention of making any transforming acquisitions. We will invest the capital from the sale of Winterthur to compensate for the loss of earnings."

The deal will cement AXA's position as the world's third largest insurer, behind AIG and ING, and will leave it within reach of claiming the second slot. "It gives us a foothold in markets that will generate, in years to come, significant growth," AXA's chief executive, Henri de Castries, said.

The market reacted relatively positively. AXA's shares fell just 1.8 per cent to €23.87, giving it a market value of €44.7bn. Shares in Credit Suisse rose 1.4 per cent to Sfr63.7, giving it a market value of Sfr79.5bn.