Wesfarmers (WES) has agreed to sell its Australian and New Zealand underwriting operations of its insurance division to Insurance Australia Group (IAG) for $1.845 billion.
In a statement to the Australian Securities Exchange, Wesfarmers said the deal does not include Wesfarmers' broking operations in Australia, New Zealand and the United Kingdom, or its premium funding businesses in Australia and New Zealand.
The sale agreement includes the underwriting operations for Coles Insurance, which will continue with Coles supermarkets under a deal with a remaining 10-year term, Wesfarmers said.
Wesfarmers said it expects to record a pre-tax profit of $700 million to $750 million on successful completion of the transaction, which it expects to include in the financial results for the second half of fiscal 2014.
IAG said the acquisition is expected to deliver modest earnings per share accretion in its first full year of ownership and at least five per cent accretion in the second year, excluding integration costs and amortisation of identified intangibles.
The purchase will be funded from a combination of ordinary equity, subordinated debt and internal funds, including a fully underwritten $1.2 billion institutional placement at $5.47 per share, a 4% discount to IAG's closing price on December 13, IAG said.
The sale is subject to a number of regulatory approvals from the Australian Prudential Regulation Authority, Australian Competition and Consumer Commission, Reserve Bank of New Zealand, New Zealand Commerce Commission and New Zealand Overseas Investment Office.
Wesfarmers managing director Richard Goyder said the group had received a number of expressions of interest for the underwriting operations and believed the sale was consistent with the group's focus on disciplined portfolio management.
"I thank the team at Wesfarmers Insurance division for their outstanding efforts to deliver a record earnings performance in the 2013 financial year after several years of volatility in insurance markets following a period of extreme catastrophic events," Mr Goyder said.
IAG has entered a trading halt at the company's request, pending the release of announcement about a share placement to fund the acquisition.
In a separate statement, IAG said its placement of ordinary shares to sophisticated and professional investors will start today and is being conduct to partially fund the group's acquisition of Wesfarmers' insurance underwriting businesses in Australia and New Zealand.
IAG expects the halt to be lifted pre-market on December 17 after an announcement about the placement's outcome.
IAG said it was not aware of any reason why the halt should not be granted.