AXA Raises $2.75 Billion in Year’s Biggest IPO

U.S. initial public offerings have the seismic changes in the insurance industry to thank for 2018’s biggest share sale.

Axa Equitable Holdings Inc. sold 137.25 million shares at $20 each on Wednesday to raise $2.75 billion. That’s well short of the $3.7 billion it was trying to raise at the high end of the $24 to $27 share price range marketed to investors. The shares are set to begin trading Thursday on the New York Stock Exchange under the symbol EQH.

The business, valued by the share sale at $11.2 billion, is made up of the U.S. operations of Europe’s second-largest insurer, Axa SA, including its U.S. Life & Savings unit and a 64 percent stake in money manager AllianceBernstein Holding LP.

Even with the lowered price, the offering was still the biggest in the U.S. this year, topping Pagseguro Digital Ltd.’s $2.6 billion IPO in January and iQiyi Inc.’s $2.4 billion listing in March, according to data compiled by Bloomberg. The only bigger IPO this year was Siemens Healthineers AG’s March 15 offering in Frankfurt, which raised 4.04 billion euros ($4.8 billion).

For Axa’s parent company, the deal provides a way to unlock capital. The proceeds from listing about 20 percent of Axa Equitable Holdings will help the French insurer fund its biggest-ever acquisition: a $15.3 billion takeover of XL Group Ltd. The maneuver will help Axa shift toward property and casualty insurance while reducing its exposure to savings activities in the U.S.

Insurers have increasingly sought to spin off or take units public, as well as offload blocks of business, as the industry undergoes a “great restructuring,” according to Wells Fargo & Co. analyst Sean Dargan. The sweeping changes have been partly driven by a focus on improving returns, Dargan wrote in a January note.

Last year, MetLife Inc. spun off Brighthouse Financial Inc., a U.S. business that sells annuities and life insurance to individuals. The stock has fallen more than 25 percent since it started trading in July. Voya Financial Inc. offloaded a block of annuities to buyers that included private equity firm Apollo Global Management LLC.

Axa is taking its U.S. business public at a tough time for the industry. Life insurance companies have been hurt by low interest rates, which typically curtail the returns they can make on the investments that back their obligations to policyholders. The industry has underperformed the broader S&P Index over the past year.

Investors were asked by Axa Equitable Holdings to buy into a company that makes most of its money from fees — generated by retirement and protection products and investment management services — as well as premiums from traditional life insurance and annuities and income from investments, according to its IPO filing. Most products are sold through its 4,700 employees at Axa Advisors.

Axa’s U.S. business was the third-largest seller of variable annuities in the U.S. last year, according to industry group Limra. Those products require a lot of capital and can be volatile when markets swing. The company has a “relatively high level of market risk,” which could result in a discounted multiple compared with its peers, according to Bloomberg Intelligence analysts Jeffrey Flynn and Jonathan Adams.

The company posted revenue of $12.5 billion last year, up 5 percent from 2016. Its net income was $1.3 billion in 2017, down 24 percent from the previous year.

Axa Equitable Holdings has committed to return 40 percent to 60 percent of its adjusted operating earnings on an annualized basis to shareholders, beginning in 2018, according to the filing. It expects a compound annual growth rate in that metric of 5 percent to 7 percent through 2020.

Morgan Stanley, JPMorgan Chase & Co., Barclays Plc and Citigroup Inc. led the offering.