By Maya Nikolaeva and Matthieu Protard | PARIS
AXA (AXAF.PA) Chief Executive Thomas Buberl plans to overhaul the group's U.S. operations, proposing to float its American life insurance and asset management businesses in 2018 in order to free up capital and pursue takeover targets elsewhere.
The listing of a minority stake in AXA's U.S. operations in the first half of next year follows similar plans by rivals, such as Metlife (MET.N), which is also aiming to spin off its U.S. retail business Brighthouse Financial.
In the past investors have questioned whether AXA needs to retain two separate asset managers - AXA IM which is focused on Europe and the U.S.-focused AllianceBernstein Holding (AB.N), in which AXA holds a 64 percent stake.
"We are convinced our U.S. operations would be better positioned as a listed company in the U.S., operating on a level-playing field under local regulatory rules," said Buberl.
Buberl, who took over as CEO of Europe's second largest asset manager last year, has ruled out major acquisitions and pledged to improve profits through higher prices and cost-cutting.
A London-based analyst put a valuation of 13.4 billion euros ($14.6 billion) on the U.S. business, equivalent to more than a fifth of AXA's market capitalization.
The proceeds of the IPO would be reinvested in businesses such as health insurance, savings products that do not tie up too much capital, property and casualty insurance. Some of the cash could also be returned to shareholders, AXA added.
"We will be very active now to pursue (M&A) targets," Buberl told analysts.
AXA has a 1 billion-euro ($1.1 billion) annual budget until 2020 for investments.
The U.S. business, which includes AXA AllianceBernstein, accounted for around 1.1 billion euros, or 19 percent of AXA's underlying earnings in 2016, analysts at Barclays said.
Earlier this month AXA fired AllianceBernstein's longtime leader Peter Kraus, replacing him with a new chief executive and new chairman, and overhauled the firm's board. It said on Wednesday that the market flotation plan and the management reshuffle had nothing to do with each other.
"While we regard this as a capital management/portfolio management exercise – and as such positive - some may speculate the action is taken in an effort to build a war chest for potential big M&A," Barclays analysts added in a research note.
Shares in AXA, which also reported a 0.1 percent dip in first-quarter revenues on Wednesday, were down 0.6 percent at 24.36 euros at 1114 GMT, when the Stoxx Europe 600 insurance sector index was down 0.1 percent.
AXA faces uncertainty over U.S. regulation as well as taxation, after President Donald Trump ordered a review of the Department of Labor's new rule that permits consumers to sue advisers if they do not think they have met their fiduciary obligations.
The life insurance industry has not been supportive of that U.S. rule, citing potentially lower sales and high costs of compliance that could drive smaller players out of business.
AXA also said that ahead of the IPO, it planned to convert about 1 billion euros of outstanding debt owned by AXA U.S. to strengthen the general financial position of the business.
(Reporting by Maya Nikolaeva and Matthieu Protard, additional reporting by Carolyn Cohn in London; Editing by Sudip Kar-Gupta and Greg Mahlich)