Health watchdog monitoring Argus share buyout of BF&M
A huge investment in a major health insurer by a rival firm is being watched closely by health officials to safeguard consumers.
A subsidiary of Argus Group Holdings Limited has agreed to acquire a stake in BF&M Limited in a deal valued at $100 million. It means when the deal is done, the Argus unit will become BF&M’s principal shareholder with a 36.9 per cent share holding.
Ricky Brathwaite, chief executive of the Bermuda Health Council, told The Royal Gazette the regulator was keeping watch of the transaction, which came after international firm Camellia agreed to sell its stake in BF&M.
He said the BHeC, as licensing authority, would ensure “any implication of such a transaction” met with Bermuda Monetary Authority requirements.
Dr Brathwaite added the BHeC would “if necessary adjust any health insurance licence conditions for the applicable period”.
The council was said to be watching the implications for “the health insurance market and service provider consolidation”.
“This is especially critical as Bermuda seeks to better manage our healthcare costs and right-size our supply side,” he said.
“All this in the face of projected increases in over-65 age-based demand — but also projections of stagnant growth of other ages within the population.”
The merging of similar services was classed as horizontal integration, he said, contrasted with vertical integrations such as Argus’s purchase of medical practices in 2020.
“Integrations such as these can lead to consolidation of functions, either through soft consolidation or traditional consolidation.”
He added: “Despite the history of soft consolidation in Bermuda, over the last few years we have seen our health market aggressively approach traditional consolidation, at the service and funding levels.”
Dr Brathwaite said this meant that fewer companies in speciality areas were “in charge of making significant population health decisions”.
“As a country, we are quite new to this practice in the health market and will need to track changes to understand the local impact.
“For many of the last decades, we have engaged in a very decentralised health system often with silos, where agreements of process and standards were co-located within each entity.”
Dr Brathwaite acknowledged the news “may be surprising” but said the BHeC had been following the market trend for “quite some time”.
Camellia Plc wanted out of their insurance investment in BF&M for some time, forcing the company into the strategic review last year, an exercise which failed to yield a suitor for the company.
It was part of their new strategy divesting noncore businesses, undertaking a series of measures aimed at rebalancing the group’s portfolio of investments in order to take better advantage of its strengths.
Significant steps were taken to diversify interests in agriculture where they have scale and expertise, and sell those businesses where they have fewer long-term strategic advantages.
But through 2021, the company seemed high on the Bermuda insurer.
The operational report in the annual statement noted: “BF&M made a substantial contribution to our performance in 2021 recording net income up 19 per cent at Bermudian $25.7 million (2020: Bermudian $21.6 million) due to a 15 per cent uplift in gross premiums written in the period compared to the prior year.
“This was driven by increased property and group health premiums and new business. Short-term claims and adjustment expenses increased by 53 per cent to Bermudian $14.8 million while life and health policy benefits decreased by 24 per cent to Bermudian $77.5 million.”
The company is known as the largest private producer of tea, with 57 tea factories across four countries. It is also the largest producer of Macadamia in Malawi and the largest producer of avocados in Kenya.
The UK company operates across ten countries with 75,000 employees in agriculture, engineering, food service and investments.
Argus served notice yesterday that its Bermuda Life Insurance Company Limited had entered into a share purchase agreement with Lawrie (Bermuda) Limited, a wholly owned subsidiary of Camellia Plc, to purchase Camellia’s 36.9 per cent shareholding in BF&M.
The $100 million deal would make the Argus subsidiary not just the largest shareholder, but one that paid well over market for the BF&M stake.
A statement from BF&M said: “The [BF&M] board understands that Camellia is resolute in its intention to divest its ownership interest in BF&M.
“However, we are disappointed that Camellia has decided to divest their stake in BF&M to Argus — a transaction with a direct BF&M competitor.
“Our board will continue to assess all potential impacts from this transaction. As ever, our focus remains squarely on providing best-in-class support to all our stakeholders including our clients as they continue to navigate a challenging and dynamic risk landscape, and we remain singularly focused on executing our strategy.”
Last June, BF&M announced that it had initiated “a review of strategic alternatives to maximise shareholder value, which may include the sale of the company”.
The decision was made after discussions with its principal shareholder Camellia Plc, which had valued its 37.4 per cent ownership position at £57.7 million, at that time roughly $70 million, or $30 million short of yesterday’s purchase price.
Argus said the purchase of its competitor’s shares will be financed by a combination of $50 million of existing cash resources and a new $50 million debt facility.
The purchase is conditional on the satisfaction of certain conditions, including regulatory and tax approvals and notifications in a number of jurisdictions.
The purchase is expected to complete this autumn.
John Wight, an independent senator and former head of BF&M who stepped down last December, said aspects of its takeover by Argus made business sense.
Mr Wight warned it was “early days in terms of what this means for the Bermuda insurance industry”.
“There are pros and cons of what possibly might become the consolidation of two local insurers, but the devil is in the details. It’s too early to speculate.
“Certainly it’s the way of the world in terms of consolidation to improve synergies, especially with a majority shareholder acquiring a minority company, but that’s in theory how these transactions occur. I think there will be more discussions forthcoming over the coming days, in addition with regulators.
“While there is an overlap in the insurance business between Argus and BF&M Bermuda, BF&M largely does business in the Caribbean, which Argus does not. Argus does business in Malta, which BF&M does not. I can see why this would be an appealing transaction for Argus.”
Alison Hill, chief executive of Argus, said: “BF&M is an important business for our island. Camellia’s stake in BF&M was up for sale. It was important that we moved quickly to buy this stake to avoid BF&M being absorbed by an overseas insurance group.”
Ms Hill said the move was preferable “in the hands of an accountable local community partner, rather than owned by a large overseas insurance group”.
“We consider the investment to be an attractive proposition for our shareholders.”
She added: “Following completion of the purchase, BF&M will be able to operate its day-to-day business independently of Argus.”
She said it was not expected to cause changes in BF&M’s service, contracts or personnel.”
Argus said Camellia, a substantial London-listed international group, is focused on agricultural businesses and has in recent years exited noncore investments in other sectors.
In January, BF&M confirmed that it had concluded last year’s strategic review, without completing a sale of the whole company.
In the wake of the termination of that company-led process, Argus said, Camellia sought a purchaser for their stake directly.
After completion of the just announced deal, Argus said, the shareholding will be held as an investment in an associate and accounted for using the equity method.
It said it is possible that taxes and/or fees may become payable in connection with the purchase and obtaining the necessary pre-closing approvals and notifications although such amount cannot be determined until the required applications have been submitted.
If Argus’s share of such items exceeds agreed thresholds, then Argus has the ability to terminate should it wish.
The vendor has the same termination right in respect of its share of such costs.
Argus said its existing dividend policy will not change as a result of the purchase.