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Discovery announced earlier it would be buying Standard Life for R1.56bn, which would be incorporated into its existing UK operations - PruHealth (in which it holds a 50% stake). Standard Life offers healthcare insurance to around 700 000 individuals and holds an 11% market share.
Speaking during a conference call to analysts, Discovery CEO Adrian Gore said the group had been pursuing a deal with Standard Life for the past 18 months.
"We believe that with this transaction we have a very strong chassis to work off," he said, adding the Standard Life brand will disappear quite quickly as it merges with PruHealth.
Following the transaction, Discovery will see its stake in PruHealth increase from 50% to 75%.
Until now, Discovery has managed the back-office administration of its UK operations in South Africa while its partners took care of sales. However, the transaction will see Discovery taking a more hands-on role in its UK ventures.
The transaction will be Discovery's latest foray into foreign markets, after experiencing mixed success with previous ventures. While PruHealth is expected to break even in 2011, Discovery has burnt its fingers in the US following a costly attempt to enter the American market.
However, Vega Asset Management analyst Francois Du Plessis said Discovery would've learned from previous mistakes. "The acquisition makes sense and if you exclude the entry into the US, the Discovery team has a good track record [of implementing deals]".
JP Morgan analyst Francois du Toit concurred, adding that Standard Life was "operating remarkably well in comparison to its peers".
Head of European insurance analyst firm Ketola Research Risto Ketola, who questioned Discovery's growth strategies when the group recently posted interim results, also said he could find little to criticise Gore and Discovery's management on the deal.
During the conference call, UBS analyst Michael Christelis asked why Discovery was moving away from an organic growth model in the UK. "We've focused on organic growth [in the past] but in established markets like the UK it is a slow and difficult process," Gore countered.
Shares in Discovery were off 0.8% to 3 650c per share during afternoon trade.
- Fin24.com
