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Fraying of Allianz-Income deal shocks insiders; coming up with new proposal no easy task

Claire Huang
Senior Business Correspondent
SINGAPORE - It was to be a marriage of convenience but those involved are now faced with much inconvenience.
The fraying of the proposed union between German insurer Allianz and Singapore’s Income Insurance has left people close to the matter shell-shocked and red-faced.
Sources told The Straits Times that parties who would normally have been kept abreast of developments in the proposed deal were not told in advance about the Government’s move on Oct 14 to halt the planned marriage.
It comes after Allianz on July 17 made an offer to buy a controlling stake of at least 51 per cent in Income in a deal that was valued at $2.2 billion. The offer was subject to regulatory approval.
In the end, the groom in question was left at the altar, the bride was in tears and the parents were stunned.
ST was told that Allianz and NTUC Enterprise, which is a major shareholder of Income, were informed of the rejection shortly before the Government’s decision was made public in Parliament.
Key people close to the proposed deal said the decision was kept to a small group and that they were not privy to the decision, which has been described as “a total shock”.
The move, announced in Parliament on Oct 14 by Mr Edwin Tong, Minister for Culture, Community and Youth and Second Minister for Law, came on the back of new information disclosed after an Aug 6 Parliament sitting.
Allianz, in its business plan submission to the Monetary Authority of Singapore (MAS), said it could return around $1.85 billion in cash to its shareholders. This would be within the first three years after the transaction wraps up.
It is worth noting that the business plan submission is separate from the voluntary offer to acquire a stake in Income.
In 2022, when Income switched from a cooperative to a corporation, the Ministry of Culture, Community and Youth (MCCY) allowed it to keep around $2 billion in surplus as the insurer continued running its business.
Without this MCCY exemption, the surplus would have been handed to the Co-operative Societies Liquidation Account to benefit the co-op movement in Singapore, as required under the law.
Mr Tong’s point was that it is unclear what Income might do after the suggested capital extraction, such as whether it would trim its insurance portfolio.
Coupled with the fact that NTUC Enterprise will be a minority shareholder after the deal, he said the Government decided to block the deal in its current structure.
The Insurance Act will also be amended so that MAS has to factor in MCCY’s views when it comes to insurers that are cooperatives or related entities.
When asked, a source familiar with the deal said Allianz’s plan “was not something we were privy to”, given that it was mentioned in the business plan submitted to MAS.
ST was told that some had an idea that there would be a capital optimisation plan, but not the amount involved.
The problem this creates is one of contradiction.
It brings into question assurances from Income and NTUC Enterprise that the local insurer can grow and keep up its social obligations. It also exposes the calculations of the groom.
With the deal off the table for now, the insurers have to go back to the drawing board.
“We have to quickly replan,” the source said.
NTUC Enterprise and Income said in separate statements late on Oct 14 that they will study the implications of the latest development and work closely with relevant stakeholders to decide on the next course of action.
In another statement, Allianz said it will consider revisions to the proposed transaction structure.
The question now is how Income’s management, its board and NTUC Enterprise can find a palatable solution that not only protects the interest of the 16,000 or so minority shareholders but also ensures the insurer can survive in a highly competitive market.
For Allianz, as an industry source puts it, the insurer will have to figure out what it is going to do without Income’s surplus that would have sweetened the deal.
As the saying goes at a union, “speak now or forever hold your peace”.
The episode leaves much thinking to be done on how due diligence on such deals can be improved.
If anything, the door is still open for Allianz to revise its offer, given that the Government does not have concerns about the standing or suitability of the German insurer to acquire a majority stake in Income.
The Government’s position on any such union is clear, that it has to be one that puts the public interest at heart and allows Income to deliver on its social obligations.