Daiichi Life bids $4.4 billion for Challenger in a bet on Australia’s retirees

Japan’s life insurers learned early what an ageing society does to a balance sheet: customers live longer, the home market stops growing, and the money has to find younger, richer pools of savings somewhere else. Daiichi Life now wants to own outright one of the companies at the centre of Australia’s version of that story. Its Australian arm, TAL, has made an offer for every Challenger share it does not already hold.

Challenger is the country’s largest seller of annuities, the products that turn a retirement pot into a guaranteed income for life. Daiichi Life already owns about a fifth of it. The bid would turn a minority bet into full control of a business built on one promise: that Australians who spent their careers saving for retirement will not outlive their money. Challenger’s board says it is considering the proposal.

A price far above what Daiichi paid last year

TAL Daiichi Life Australia is offering A$11.80 a share through a scheme of arrangement, the usual Australian route for a friendly takeover. Challenger said the price is a 17.7% premium to its one-month volume-weighted average of A$10.03, and Reuters put it at 19.8% above Friday’s close. The proposal values the whole company at about A$7.94 billion, or $5.53 billion. Bloomberg calculated the cost of the 79.5% that Daiichi Life does not yet own at roughly $4.4 billion.

The offer also shows how quickly Daiichi Life’s view of the company has changed. Last year TAL bought the 15.1% stake held by MS&AD, another Japanese insurer, for about A$8.46 a share, a 53% premium to Challenger’s share price at the time. The new offer is nearly 40% above that. According to LSEG data, TAL now holds 20.36% of the company.

When that first stake was announced, TAL chief executive Fiona Macgregor said the company wanted to serve “five million Australians currently in or preparing for life after their careers.” The full bid suggests Daiichi Life now thinks owning part of that market is not enough.

Why a Japanese insurer wants Australian retirees

For Daiichi Life, the move fits a pattern. Japan’s population has been shrinking for years, and decades of near-zero interest rates squeezed what insurers could earn on the premiums they collected at home. The answer across the industry has been to buy growth abroad. Daiichi Life bought about 15% of the British asset manager M&G last year, becoming its largest shareholder, and raised its stake in the London hedge fund Capula. Nippon Life bought the rest of Resolution Life, and Meiji Yasuda signed a partnership with Legal & General.

Australia is a natural target. Its compulsory superannuation system has spent three decades building one of the world’s largest pools of retirement savings, and the workers who built it are now starting to draw it down. Challenger sells the product that turns those savings into a monthly income. Daiichi Life already owns TAL, one of Australia’s biggest life insurers. Adding Challenger would give it a large share of what Australians spend both while they are working and after they stop.

Challenger has also been narrowing to that core. In June it agreed to merge Fidante, its business of boutique fund managers, into Channel Capital, which would leave it more focused on retirement income. That is the part Daiichi Life is bidding for.

What still has to happen

The proposal is non-binding and conditional. Daiichi Life wants to complete due diligence and sign a scheme implementation agreement on acceptable terms. It also needs regulatory approvals and a recommendation from Challenger’s board. A scheme would then go to a shareholder vote and need court approval. Australia’s Foreign Investment Review Board and the prudential regulator, APRA, both had to clear the smaller stake last year.

If the deal goes through, a growing share of Australian retirees will have their monthly income guaranteed by a group run from Tokyo, one built on a lesson from Japan: when people live longer, the money they saved has to last longer too.

Tags: Australia, mergers and acquisitions, annuities, Challenger, Daiichi Life, TAL