Capital extraction, capital optimisation and asset stripping

ST takes a look at the various terms bandied around in the Allianz-Income saga

- Angela Tan

Few merger-and-acquisition (M&A) transactions have captured the public's attention to the same degree as the ongoing saga surrounding German insurer Allianz's planned offer to buy a controlling stake in Singapore's Income Insurance.

What began as a pre-conditional voluntary cash general offer on July 17 has led to public concerns here. The transaction was subsequently halted by the Government on Oct 14 due to concerns over the structure and Income's ability to continue its social mission.

Allianz is now working with stakeholders to consider revisions to the transaction structure.

As the saga unfolded, various M&A terms were bandied around. ST looks at these terms.

CAPITAL REDUCTION

This was one of the sticking points as to why the Government halted the proposed transaction.

Minister for Culture, Community and Youth Edwin Tong disclosed that Allianz had planned a capital reduction exercise to return $1.85 billion to shareholders within three years after completion of the deal.

He said this ran counter to why Income was allowed to carry over some $2 billion after it changed from a cooperative to a company in 2022.

If not for the exemption, the accumulated surplus would have gone to benefit the co-op movement in Singapore.

So, what is a capital reduction exercise?

It is a corporate financial strategy where a company reduces its shareholder equity, primarily to manage its capital structure more effectively.

It can involve buying back shares, cancelling shares or returning capital, thus decreasing the total number of shares in the market.

Capital reduction can help a company improve its financial health and enhance shareholder returns.

Companies often undertake such an exercise during restructuring, internal reorganisations, or during a merger or acquisition to optimise their financial position.