Notable Mergers and Acquisitions of the Day 07/18: (ALL) (GNTX)/(JCI) (DGX)
* The Allstate Corporation (NYSE: ALL) announced a definitive agreement to sell its Lincoln Benefit Life Company ("LBL") to Resolution Life Holdings, Inc. ("Resolution Life") for $600 million, thereby exiting the consumer segment served by independent life insurance and annuity agencies and reducing required capital in Allstate Financial by approximately $1 billion. In addition, Allstate Financial will discontinue issuing fixed annuities at year-end 2013 and utilize third party annuity companies to ensure Allstate agencies and exclusive financial specialists continue offering a broad suite of protection and retirement products.
Transaction DetailsAllstate has entered into a definitive agreement to sell LBL to Resolution Life for $600 million, generating cash proceeds, inclusive of tax benefits, of approximately $785 million. The transaction is expected to close by the end of the year, subject to customary regulatory approvals. The sale of LBL is estimated to result in a GAAP loss on sale in the range of $475 million to $525 million, after-tax, and a reduction in GAAP equity, including the impact to unrealized capital gains and losses, in the range of $575 million to $675 million. This transaction will result in a statutory gain of $350 million to $400 million, increase Allstate's deployable capital by approximately $1 billion and reduce Allstate life and annuity reserves by $13 billion.
The business being sold had $341 million of premiums and contract charges, representing 15% of Allstate Financial's 2012 total. Normal after-tax returns have averaged approximately 1% of transaction reserves.
As a result of this transaction, Allstate will not sell new life or retirement products through independent life insurance and annuity agencies. Allstate will continue to service in-force LBL business sold through independent life insurance and annuity agencies for a 12- to 18-month transition period, after which this business will be administered by Resolution Life. Resolution Life was founded by The Resolution Group, which has a consistent track record of establishing businesses in the United Kingdom for the management of in-force life insurance policies. Its operations in the United States are led by a seasoned executive team with extensive life insurance experience. Resolution Life has a long-term view of the market and is committed to retaining in-force customers and providing excellent customer experiences and support.
Allstate agencies and exclusive financial specialists will continue to sell LBL life products until Allstate Financial transitions these products to another Allstate company. When the transaction closes, in-force LBL life and all LBL payout annuity business sold through the Allstate agency channel will continue to be reinsured and serviced through Allstate.
* Gentex Corporation (Nasdaq: GNTX) announced the signing of a definitive agreement to acquire Johnson Controls' (NYSE: JCI) HomeLink business.
HomeLink, a vehicle-based control system that enables drivers to remotely activate garage door openers, entry door locks, home lighting, security systems, entry gates, and other radio frequency convenience products, has been integrated into Gentex' automatic-dimming rearview mirrors for more than 10 years. It is compatible with a wide variety of home safety and convenience products, and is currently offered in all automotive brands. HomeLink is compatible with more than 99 percent of garage door opening systems, and is sold in North America, Europe, Africa, Asia/Pacific and the Middle East.
Under the terms of the agreement, Gentex will acquire all of Johnson Controls' HomeLink assets, intellectual property, testing facilities, and the talented employees who manage and support the business, for a purchase price of $700 million. The transaction is subject to customary closing conditions, including certain regulatory approval, and is targeted to close on or about September 30, 2013.
Once fully integrated the Company expects that its' annual revenue will increase in the range of $125 million to $150 million per year. The Company also estimates that the Company's gross profit margin will be positively impacted in the range of 1% - 1.5% on a consolidated basis. The Company further expects that once the integration is completed, operating expenses for the Company will be in the range of the company's historical operating expenses as a percent of sales. Based on these estimates and expectations, the Company forecasts the addition of HomeLink to be accretive to profitability and earnings per share, and a growth driver for the business overall.
* Quest Diagnostics Incorporated (NYSE: DGX) announced that it has completed the sale of its rights to royalties from commercialization of the drug candidate ibrutinib to Royalty Pharma, the industry leader in acquiring royalty interests in marketed and late stage biopharmaceutical products, for $485 million in cash.
The sale is expected to result in after tax cash proceeds of approximately $300 million, before associated transaction costs. The gain associated with the sale will be recorded in the third quarter and will be excluded from adjusted earnings.
As part of its acquisition of Celera in 2011, Quest Diagnostics gained rights to royalties on ibrutinib, an experimental cancer therapy currently in Phase III development by Pharmacyclics (NASDAQ: PCYC) and Johnson & Johnson (NYSE: JNJ), through its Janssen Biotech subsidiary. Ibrutinib is an inhibitor of the enzyme Bruton's tyrosine kinase (BTK).
Quest Diagnostics continues to retain royalty rights to other clinical indications that result from Celera's drug assets, including programs that target histone deactylase, or HDAC, selective HDAC enzymes and Factor VIIa, as well as other BTK compounds. In addition, Quest continues to hold the cathepsin K intellectual property licensed by Celera to Merck for the drug odanacatib. All of these agreements pertain to drugs that have not yet been commercialized. Quest Diagnostics has not yet received any royalty payments related to these programs.
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