Axa-Money Case Study

1. How did AXA finance the takeover bid: ORANs

a. A Bond redeemable for a share in a foreign company.

b. As part of an overall rebalancing of the hedge of its purchase stock option plans, AXA purchased on November 22, 2004, approximately 25.5 million call options on AXA ADRs, for a total of $89 million. The purpose of the hedge is to protect the Group against an increase in the AXA share price and a depreciation of the U.S. dollar versus the Euro. As a consequence of this rebalancing of its hedging strategy, the AXA Group sold 6.7 million of treasury shares for a total amount of €120 million.

c. Structure:

i. AXA issued 110,245,309 ORANs to fund the bid.

ii. If the AXA-MONY takeover deal were not completed by Dec. 22, 2004, the ORANs would pay off their face value of €12.75, plus interest at Euribor. But if the takeover deal went through, the ORANs would each convert into one share of newly-issued AXA stock.

d. Why this Structure:

e. Effects on the likelihood of the deal succeeding:

i. This method of financing indicated that AXA had good performance of equity. AXA did not need to raise equity. So this might be attractiveness for the acquired company.

ii. For AXA, this deal could simply increase its insurance operations in the United States. From this deal, AXA could gain benefit from MONY’s some important growth locations and wholesale distribution. MONY could also offer AXA with some new life products.

2. Fairly Valued?

a. For management, they thought that MONY was too small to operate effectively in its industry. So they believed that this deal would bring strategic distribution and raise the value of the firm.

b. I would concern that the AXA’s offer was too low. MONY should invite competing bids through an auction in order to raise the price. I would also concern that MONY’ management was keen to sell the company only for their own compensation payment.