Sampo Oyj is paying a large premium for the 50.5% of Danish insurer Topdanmark A/S that it does not already own, but it should be able to generate the synergies that help justify the price, according to analysts.

Sampo, a pan-Nordic property and casualty insurer, announced June 17 that it was offering 1.25 of its shares for each Topdanmark share it plans to acquire, implying a 27% premium to Topdanmark's June 14 share price. The value is 22.2x Topdanmark's 2025 price to earnings ratio excluding synergies. But factoring in the €95 million annual synergies Sampo expects takes the multiple down to 13x, according to Sampo's deal presentation.

Topdanmark, Denmark's third-largest property and casualty insurer, was already trading at 17x its two-year price-to-earnings, a premium to its Nordic peers that is "not fully justified" because, although the company is well run and has been consistently profitable recently, it is relatively small and only writes business in Denmark, Tryfonas Spyrou, an analyst at Berenberg, said in an interview. The 27% premium Sampo will pay on top of that, taking the multiple to 22.2x, "is actually quite high," he said.

But he added: "The deal was always going to rest on getting those synergies [to be] big enough to justify bringing the multiple down. It looks like now they managed to get it over the line."

Reachable goals

Of the synergies Sampo expects, €65 million are cost-related and €30 million revenue-related. They will be fully achieved by 2028. A "large proportion" of the total synergies will be realized by the end of 2027, with some emerging in 2026, Torbjörn Magnusson, Sampo's CEO, told analysts on a deal call.

Equity investors "have historically been hesitant to give credit for revenue synergies upfront," Claudia Gaspari, an analyst at Barclays, wrote in a research note. She also said the offer premium "appears generous" considering Sampo already owns around 50% of Topdanmark.

However, the planned synergies look achievable, according to Spyrou. "If anything Sampo probably under-promised and … left some room to maneuver," he said. This is because Sampo is generally very cautious, he said, and as it has been a Topdanmark shareholder for many years and held seats on its board of directors, it has a good idea of what it can change to get results.

Spyrou also noted that, as a percentage of total costs and revenues, the synergies Sampo seeks are lower than those Danish insurer Tryg is targeting from its 2021 acquisition of UK insurer RSA's Swedish and Norwegian businesses. Tryg is targeting 900 million Danish kroner of annual synergies from the acquisition by the end of 2024, and had got to 711 million kroner by the end of 2023, ahead of an interim target of 650 million kroner for that year.

Partly because Sampo's synergy goals look within reach, there has been little investor concern about the deal, Spyrou said. "We haven't really got anybody questioning those numbers," he said, adding that the deal was well received by investors on both sides.

Topdanmark's share price jumped 22.2% to 354 Danish kroner on the day the deal was announced, and is now trading higher, with a closing price of 369 kroner on July 1. Sampo's share price fell 1.3% to €38.81 on the day of the announcement, but is now trading higher than before the announcement, with a closing price of €40.18 on July 1.

Among other gripes Sampo shareholders could have with the deal, according to Gaspari, are the timing, as an earlier deal would have allowed Sampo shareholders to get more of the value from the 2022 sale of Topdanmark's life insurance business, and that, having expected a share buyback of €700 million in 2024, they will now have to share the benefits of the buyback resulting from the deal with Topdanmark shareholders. As part of the acquisition, Sampo announced an initial €400 million buyback and allocated another €400 million for further buybacks and squeezing out any Topdanmark shareholders that do not take up its offer.

Sampo's plan to have a secondary listing in Copenhagen as part of the deal, in addition to its existing primary listing in Helsinki and Swedish Depositary Receipts traded on Nasdaq Stockholm, "appears an overly complex structure for a lean business," Gaspari said.

However, Gaspari said the deal "makes sense strategically and operationally."

Little overlap

If P&C Insurance Holding Ltd (publ), Sampo's Nordic property and casualty insurer, which will merge with Topdanmark, currently has a small presence in Denmark compared to Sweden, Norway and Finland. If's existing Danish business is mainly large commercial business, meaning it has little overlap with Topdanmark's personal-lines-heavy book.

The acquisition also adds some business lines that If does not already have, including assistance and miscellaneous financial loss, according to the solvency and financial condition reports of Topdanmark and If Skadeforsikring, If's main insurance subsidiary.

"There's not really any real antitrust issue because they're just combining different customer bases," Spyrou said.

The two companies' strategies have become more similar as they both focused their businesses more on property and casualty insurance. Sampo, for example, demerged its life operation, Mandatum, in 2023 and sold its 19.9% stake in Finnish bank Nordea in a series of transactions between 2020 and 2022.

The deal will propel the combined If/Topdanmark entity to the number two spot in the Danish property and casualty market, behind Tryg. It will also give Topdanmark the benefits of being part of a larger company. This could, in time, help the combined entity be more competitive and vie for Tryg's top spot in Denmark, but in the near term "I wouldn't expect any major disruption in the market shares or any big moves," Spyrou said.

As of July 1, US$1 was equivalent to 6.96 Danish kroner.