Desjardins Group to acquire State Farm Canada businesses | Canadian Insurance

Desjardins Group to acquire State Farm Canada businesses

Transaction expected to close in January 2015

Desjardins Group and State Farm have announced that they have entered into a definitive agreement under which Desjardins Group will purchase State Farm Canada’s businesses in property and casualty and life insurance, as well as its Canadian mutual fund, loan and living benefits companies.

The transaction is expected to close in January 2015, subject to approval from regulators and compliance with customary closing conditions. Following the closing, Desjardins will operate the newly acquired State Farm Canada businesses under the State Farm brand for an agreed license period.

Read: The latest M&A news

As part of the agreement, State Farm will make a $450 million (CAN) investment in non-voting preferred shares into Desjardins Group’s post-closing property and casualty insurance business, which will include the newly acquired State Farm Canada property and casualty operations. In addition, Credit Mutuel, a major European cooperative financial group and long-term partner of Desjardins Group, will invest $200 million. Desjardins Group will allocate capital of approximately $700 million to support the growth of its P&C business.

As well, Desjardins Group’s Life and Health Insurance subsidiary, Desjardins Financial Security, and certain other Desjardins units will allocate capital of $250 million for the life insurance, mutual fund, loan and living benefits components of the agreement.

As a result of the transaction, Desjardins Group will become the second largest P&C insurance provider in Canada with annual gross written premiums of approximately $3.9 billion, up from approximately $2 billion, according to a company release.

Read: Brokerage M&A update: East and West

Once the transaction is finalized, State Farm’s 1,700 Canadian employees and network of more than 500 Canadian agents will continue to serve over 1.2 million customers in Ontario, Alberta and New Brunswick. Desjardins will continue to operate its other insurance brands separately across the country.

“This acquisition will allow Desjardins to develop a broader, multi-channel distribution network across the country, while continuing to meet the needs of State Farm’s Canadian client base. At the same time, it will enhance our position in Canada by expanding our customer reach and achieving economies of scale,” Monique F. Leroux, chair of the board, president and chief executive officer of Desjardins Group, said in a press release.

“The agreement between State Farm and Desjardins, combined with the support of our long-term French partner, Credit Mutuel, brings together three financial cooperative and mutual organizations to create an insurance leader in Canada. It also provides a foundation for exploring additional opportunities for even greater collaboration in Canada in the future,” she said.

Leroux continued, “This transaction is clearly aligned with Desjardins’ strategic objectives to expand insurance distribution across the country and develop business opportunities with mutual and cooperative organizations.”

Read: A difference of opinion on directs

Edward B. Rust Jr., State Farm chairman and chief executive officer, said the transaction will create a well-positioned, Canadian-focused provider of property and casualty, life and financial services products that will expand on the operations State Farm’s Canadian employees and agents have built in Ontario, Alberta and New Brunswick.

“This combination creates a leading platform with new opportunities for growth and success for our employees, agents and customers,” he said. “State Farm’s financial investment in the newly combined P&C business and license to use the State Farm brand reflect our confidence in the strength of the combined business going forward.”

Rust added, “Desjardins Group’s strategic vision, rooted in a cooperative mission and customer-focused values, strongly aligns with State Farm’s mission and values creating opportunities for exploring further cooperation in Canada in the future.”

Barclays was financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP and Gowling Lafleur Henderson LLP acted as legal advisors to State Farm.  Desjardins Securities and BNP Paribas acted as financial advisors and McCarthy Tetrault LLP and Mayer Brown LLP (in respect of certain US regulatory matters) acted as legal advisors to Desjardins Group.

Follow us on Twitter at @CITopBroker for more on this story