Please ensure Javascript is enabled for purposes of website accessibility

Why National General Holdings Stock Just Popped 65%

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

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

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.