SYDNEY - Shares in Insurance Australia Group hit a record low yesterday as investors gave the thumbs down to last week's A$1.86 billion ($2.13 billion) acquisition of Aviva's Australasian units.
IAG shares closed down 6Ac at A$2.38.
Institutional investors are under water after buying into a A$500 million placement last week at
A$2.55 a share to part-finance the deal.
But smaller shareholders may score an initial win, as the retail investor offer - due to open on November 4 - will be priced at a discount.
Yesterday's price was a far cry from IAG's debut on the Australian Stock Exchange in August 2000 at A$3.02.
Turnover of 11.8 million shares was nearly four times IAG's average daily turnover over the last year.
Credit Suisse First Boston said in a research report that the price paid for Aviva's general insurance assets was "full", particularly as there were no competing bids.
But CSFB voiced other more pressing concerns.
"We consider the more important issue is if the diversification strategy undermines IAG's special characteristics to make it look much more like a large but more ordinary insurer," its report said.
The broker cut its 12-month target price to A$3.07 from A$3.56, and retained a "neutral" tag on IAG.
After a lukewarm response from institutions, IAG plans to raise up to A$380 million from the retail offer and said the current share price would not delay the offer.
The retail offer has been priced at the lower of A$2.55 a share or a 5 per cent discount to the average share price from the start of the offer period to mid to late-November.
IAG announced the acquisition of Aviva's CGU in Australia and NZI Insurance in New Zealand on Friday, cementing its position as Australasia's biggest general insurer with more than a third of the market.
To pay for the deal, IAG plans to raise A$1.04 billion through the institutional share placement, the retail offer and an underwritten dividend reinvestment plan to start next year.
The remainder of the cost of the acquisition would be financed by hybrid equity - debt convertible into shares - and debt issues over the next six months.
