2 Big Mergers: One a $4 Billion Cash Deal, the Other Still in the Rumor Mill

Investing

Published: July 8, 2020 1:46 pm

During a period like the COVID-19 pandemic, there are at least two reasons to find an acquisition or a merger. One is that the deal will add a new or expanded line of business that will boost the acquirer’s position in the market. The other is that cash is cheap and plentiful.

When Allstate Corp. (NYSE: ALL) announced a $4 billion cash acquisition Wednesday morning, the company said it wanted to increase its market share in the personal property-liability business. The acquisition of National General Holdings Corp. (NASDAQ: NGHC) also expands Allstate’s number and geographic distribution of independent agents.

Under the terms of the deal, Allstate will pay National General shareholders $32 per share in “combined cash resources” and a closing dividend expected to be $2.50 per share. National General shareholders will receive $34.50 “in total value per share.”

Allstate said it will use $2.2 billion in cash and, subject to market conditions, issue $1.5 billion in new senior debt. The transaction is expected to close early next year.

National General wrote about $1.2 billion in gross premiums in the March quarter, compared to Allstate’s total of $417 million in its “other personal lines” category.

Shares of National General traded up almost 65% Wednesday afternoon at $33.59, after closing at $20.41 on Tuesday. Allstate’s stock price dropped by nearly 5% to $88.10, in a 52-week range of $64.13 to $125.92.

A second merger remains on the table. Medical device maker Medtronic PLC (NYSE: MDT) is said to be preparing an offer for Intersect ENT Inc. (NASDAQ: XENT). According to a report from Bloomberg, Intersect’s board is reviewing the unspecified offer. Neither company would comment on the report.

With COVID-19 causing cancellations to elective treatment, demand for Intersect’s treatments for chronic sinusitis has slowed and the company’s share price has come under pressure. The company already has cut its workforce by 25% and furloughed another 5% of its employees.

The rumored offer boosted Intersect’s market cap to around $585 million Wednesday, with shares trading up more than 29% to $17.96, after closing at $13.89 on Tuesday. Shares traded near $29 in mid-February.

Medtronic shares traded down about 0.5%, at $91.22 in a 52-week range of $72.13 to $122.15.