NEW YORK (TheStreet) --Shares of HCC Insurance Holdings Inc. (HCC) are gaining by 36.01% to $77.13 in pre-market trading on Wednesday morning. The U.S. specialty insurer announced it is being acquired by insurance holding company Tokio Marine Holdings (TKOMY) in a transaction valued at $7.5 billion.
The deal between the two companies creates the opportunity to combine HCC's specialty expertise with Tokio Marine's global resources, the companies said in a statement announcing the deal.
The merger will enhance Japan-based Tokio Marine's operations in the U.S. and solidify its standing "as a truly global insurer," the statement continued.
Tokio Marine will pay $78 per share for HCC, a 35.8% premium to the company's average share price over the past month.
The deal is expected to close in the 2015 fourth quarter.
"This transaction yields significant value for HCC's shareholders. With Tokio Marine, HCC gains an international footprint to expand our diverse portfolio and expertise globally, a financial foundation on which to compete with larger insurers and the opportunity to offer our clients expanded coverages," HCC CEO Christopher Williams said.
Separately, TheStreet Ratings team rates HCC INSURANCE HOLDINGS INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate HCC INSURANCE HOLDINGS INC (HCC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, notable return on equity and increase in net income. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 4.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Although HCC's debt-to-equity ratio of 0.23 is very low, it is currently higher than that of the industry average.
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Insurance industry average. The net income increased by 4.6% when compared to the same quarter one year prior, going from $107.91 million to $112.92 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Insurance industry and the overall market on the basis of return on equity, HCC INSURANCE HOLDINGS INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full analysis from the report here: HCC Ratings Report