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Why National General Holdings Stock Just Popped 65%

By Rich Smith - Jul 8, 2020 at 2:13PM

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Allstate will pay a princely price to expand its market share by 1%.

What happened

Shares of property and casualty insurer National General Holdings Corp. (NGHC) are surging in early afternoon trading Wednesday, up 64.8% as of 1:35 p.m. EDT after insurance giant Allstate (ALL 0.70%) announced yesterday that it will purchase National General.  

So what

In its press release, Allstate stated that it will spend $4 billion to acquire all shares outstanding of National General, paying $32 per share, cash, as the purchase price, plus payment of National General's final dividend as an independent company -- $2.50, cash. Allstate CEO Tom Wilson noted that "acquiring National General accelerates Allstate's strategy to increase market share in personal property-liability and significantly expands our independent agent distribution," adding that "the acquisition increases personal lines premiums by $4.0 billion and market share by over 1 percentage point to 10%." 

Allstate anticipates that "the transaction will be accretive to adjusted net income earnings per share and return on equity beginning in the first year."

Wall painting depicts a large yellow fish eating a smaller yellow fish.

Image source: Getty Images.

Now what

If all goes well, that "first year" could be as early as next year, as Allstate anticipates closing its acquisition of National General in early 2021. In order to effect the purchase, Allstate will deploy its $2.2 billion in cash on hand and also issue $1.5 billion in new senior debt. The balance of the purchase price, most likely, will come from accrued profits between now and closing, as Allstate is currently earning more than $3.9 billion a year.

In the event the purchase is not completed, National General will be entitled to a $132.5 million "breakup fee."

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Allstate Corporation Stock Quote
The Allstate Corporation
ALL
$119.12 (0.70%) $0.83
National General Holdings Corp. Stock Quote
National General Holdings Corp.
NGHC

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