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AXA Having a Warm Winterthur

By Emil Lee – Updated Nov 15, 2016 at 12:38AM

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AXA is looking for synergy from the Winterthur acquisition.

French insurer AXA (NYSE:AXA) has been on a tear. In the past year, shares have risen nearly 30% thanks to strong results. Last June, AXA decided to go for the jugular and spent 7.9 billion euros (which is about $10.6 billion in U.S. dollars, based on today's rates) to buy Credit Suisse's (NYSE:CS) insurance unit, Wintherthur. So far, based on recent results, AXA's bet has paid off.

In terms of numbers, AXA had a strong fourth quarter and full year. Shareholder equity increased 29%, thanks to the acquisition, earnings growth, and a strong equity market in 2006. Although property and casualty revenues were up only 4% because of a softening global P&C market, the life and savings and asset management segments (AXA owns a majority stake in AllianceBernstein (NYSE:AB)) both performed very well, leading to an increase in adjusted earnings per share of 17%.

Initially, AXA's decision to acquire Winterthur made sense. They both had similar business mixes in life and savings and property and casualty insurance, and both had strength in international distribution. For example, based on 2004 sales, AXA's market share position in the U.S. was No. 4; in France it was No. 3, and in Germany it was No. 7. Although integration could be a tricky issue, so far it has been going well.

In the conference call, management talked about how it can pick and choose which products to sell through the combined distribution network to improve the sell-through and margins, while at the same time accessing new geographies. In fact, AXA targets a 350-million-euro synergy from the merger. Management noted that if you tax and capitalize this savings, it creates 2.5 billion euros' worth of value -- or about 30% of the cost of the acquisition from synergies alone. Although it's still too early to judge, so far the merger is paying off very well.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.

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