It has been widely reported that prior to the Federal government stepping in to salvage insurance giant AIG that Allianz SE was in active discussions concerning a possible acquisition of the company.Now, as the US government seeks to determine what to do with AIG, there are numerous reports that Allianz is at the head of the line of those companies seeking to pick at the bones of the company.
As reported on FT.Com on September 7, 2008, Michael Diekmann, the chairman of Allianz SE, flush with $14 billion from the sale of Dresdner Bank (about one-half the amount Allianz paid for the bank), is looking to invest in the US. Mr. Diekmann was quoted as saying, “But the US is a market that is undervalued right now . . . ”
Such action by Allianz is not surprising. Especially when one considers the current problems Allianz SE is facing in the US due to the declining performance of Allianz Life of North America and challenges confronting Fireman’s Fund as a niche player in the property and casualty market.
Acquiring a larger company and then submerging the problems of Allianz Life or Fireman’s Fund into this company is consistent with the way Allianz SE has dealt with problems in the past. If Allianz SE management does not know how to solve a problem it seeks to hide it within a larger company. (Allianz SE tried for almost a year to follow this strategy with poor performing Dresdner Bank by seeking to merge the bank with another bank in order to hide its problems. When that tactic failed, Allianz SE was forced to sell the bank at a fire-sale price.)
In a recent blog (Allianz – The Sad Decline of a Great Insurance Company), I wrote, “A look at the history of Allianz SE would suggest that eventually they may buy another company into which could be merged both Allianz Life and Fireman’s Fund (another company owned by Allianz SE). This approach (which has been used before) would bury the problems of Allianz Life within the newly-acquired company so that they would not have to be fully acknowledged.”
I was a personal witness to this strategy when Allianz SE acquired LifeUSA and merged the company with Allianz Life of North America. In an unusual approach for an acquisition, Allianz SE named the management of LifeUSA to lead the merged company. We at LifeUSA soon understood the strategy. It turned out that at the time of the acquisition of LifeUSA, Allianz Life of North America had serious management deficiencies and failing financial performance. In fact, at the time, Allianz Life of North America was losing millions of dollars and was rated as one of the poorest performing units in the worldwide system of companies owned by Allianz.
I can’t disagree with the strategy, (especially since it worked) but what Allianz SE did was to acquire LifeUSA and then turn the problems of Allianz Life of North America over to LifeUSA management to solve. Allianz Life soon became one of the top performing companies in the Allianz universe.
Unfortunately, now under a completely different and bureaucratic management group, Allianz Life of North America has again fallen on bad times. Both Allianz SE and the current management of Allianz Life seem to be clueless about how the company can extricate itself from the problems and turn things around.
With history in mind, no one should be surprised to wake up one morning and read that Allianz SE has acquired parts of AIG or some other company and that Allianz Life of North America and Fireman’s Fund will be merged with the acquired company. This seems to be the only way Allianz SE knows how to deal with management problems.
Unfortunately, that solution could mean more bad news for the employees of Allianz Life and Fireman’s Fund. Such a strategy would probably mean more changes, dislocations, career disruptions and downsizing. But then again, such an action could be good news for employees. It is clear that the current management of Allianz Life does not have the talent, experience, knowledge or vision to make things better, so it may have reached the point that any change is better than what exists today.