The insurance giant is making the purchase to expand its auto reach and independent agent business.
Insurance giant Allstate Corp announced this week that it will purchase National General Holdings Corp for about $4 billion. This will be a cash purchase, boosting the insurer’s auto insurance business just as the pandemic crisis has made that sector highly profitable.
Auto insurance claims are way down due to the smaller amount of traffic on the roads.
National General shareholders will be compensated with $32 per share in cash. They will also receive $2.50 losing dividends per held share. That price would assign a $3.92 billion value to the acquisition. This represents a 69 percent premium to the company’s close on Tuesday, according to a Reuters report.
The acquired insurer’s chief business is listed as auto insurance. It also offers commercial auto, personal auto, recreational vehicle (RV), and motorcycle business services.
The National General acquisition will help to strengthen Allstate’s auto insurance business.
Allstate is already among the largest auto insurers in the country. In April, it responded to the reduction in claims due to the COVID-19 pandemic with an announcement of the return of $600 million in premiums to its customers. At that time, many Americans were driving about half (40 percent to 55 percent) as much as they had been prior to the stay-at-home orders.
According to Allstate, it expects the deal to finalize at some point early in 2021. The insurer will add it to its adjusted earnings per share and return-on-equity starting the first year.
The acquisition has already received the National General board’s approval, and the acquisition agreement includes a $132.5 million breakup fee.
“Acquiring National General accelerates Allstate’s strategy to increase market share in personal property-liability and significantly expands our independent agent distribution,” said Tom Wilson, Allstate CEO.
This deal has arrived in an environment in which many North American insurance companies have faced significant asset strain. Ratings agencies have assessed that the pandemic’s adverse impact on the insurance industry will need more time to fully develop. Allstate’s financial adviser in this deal was Ardea Partners. National General was advised by J.P. Morgan Securities LLC.