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After four months of negotiations, France's AXA S.A. and Italy's Assicurazioni Generali S.p.A. have agreed to restructure their cross-shareholdings in a way that will give Generali an 11% direct stake in the French insurance company.

The agreement has been under negotiation since September 1995, when Generali Chairman Antoine Bernheim publicly expressed his dissatisfaction at Generali's status as a passive shareholder in the French insurer.

In addition to the agreement with Generali, AXA announced that it will proceed with a 5.9 billion franc ($1.18 billion) capital increase and restructuring program. Market analysts also expect AXA to complete a public offering in the United States in the spring. AXA has said only that a U.S. listing is expected this year.

AXA and Generali said in a joint statement issued Jan. 16 that the companies signed a protocol extending the cooperative relationship that has existed between the two groups since January 1990. The new agreement also proposes changes in the joint control and development structures that the two insurers set up at that time.

Under that original structure, AXA subsidiary Midi Participations, which is not publicly traded, was 60% owned by AXA unit FINAXA and 40% by Generali. In addition, a holding company for Generali in France, Generali Midi Expansion, was owned 60% by Generali and 40% by AXA S.A. and its subsidiaries.

Generali first acquired the 40% stake in Midi Participations after AXA purchased the French insurer Cie. du Midi. For Generali, its stake in the unit was equivalent to 16% of the consolidated share capital of the AXA Group and is worth about 7 billion francs ($1.39 billion). But the indirect holdings gave Generali no representation on the AXA board and therefore no clout as a shareholder. In a number of statements since last September, Mr. Bernheim said Generali wanted to have the same influence as other AXA shareholders (BI, Oct. 16, 1995).

The new structure calls for Midi Participations to be merged into AXA S.A. Since the sole assets of Midi Participations are ordinary shares of AXA, the merger of the two entities will be based on direct parity, the statement said. In addition, Generali Midi Expansion will be dissolved. The 40% interest held by the AXA Group in GME will be exchanged for a total of 10 million AXA S.A. ordinary shares.

This transaction is expected to give rise to a capital gain in AXA's consolidated financial statements. The amount of this gain will depend on the price of AXA shares when the exchange is completed.

AXA was the strongest performer on the Paris Bourse in December 1995, rising 33.4% during the month. But AXA shares fell 3.3% in one day this month when the capital increase and the agreement with Generali were announced. Stock market analysts said this was inevitable given the dilution due to the capital increase.

The joint statement went on to say that Generali will subscribe approximately 650 million francs ($129.9 million) to the AXA S.A. capital increase.

After these transactions, which are subject to regulatory approval, are finalized, the AXA controlling shareholder group will hold the following interest in AXA S.A.: FINAXA and the so-called AXA mutual companies will hold 35% of the share capital and 47.9% of the voting rights; other subsidiaries of AXA S.A. will hold 5.4% of the share capital and none of the voting rights for the AXA-related subsidiaries; and Generali will hold 11% of the share capital and 15.6% of the voting rights.

The statement said the two groups also agreed to finalize a new shareholder agreement by Feb. 15 that will "reaffirm the two partners' intention to seek joint development opportunities and, barring unforeseen circumstances, to maintain their respective holdings," the statement said. The agreement also will renew the two groups' mutual pre-emptive rights on AXA S.A. shares, after adjustments to take into account the new situation.

"Generali is over the moon with this deal," said one London insurance analyst who asked not to be identified. "They have a capital gain of 1.1 trillion lire ($695.3 million), which is twice their annual earnings."

"This agreement is not a full lock-up," added the analyst. "If it wants to, Generali in the future will be able to claim 'unforeseen circumstances' to dispose of the shares."

AXA said that from Jan. 26 until Feb. 8, existing shareholders will have preferential rights to subscribe to the new shares on the basis of one new share at 250 francs ($49.97) for every seven existing shares held. The new shares will be retroactive to Jan. 1, 1995.

The statement went on to say that in reflecting this transaction, the conversion into ordinary shares of the convertible bonds issued by AXA S.A. will be suspended from Feb. 3 through Feb. 21, 1996.

If all convertible bonds outstanding were converted into ordinary shares, the total proceeds from the capital increase could be as high as 6.6 billion francs ($1.32 billion).

AXA's controlling shareholder group will subscribe 3.02 billion francs ($602.7 million) to the capital increase, of which Generali will buy 650 million francs ($129.9 million) through Midi Participations.

The statement added that a portion of the shares purchased by the AXA Mutual companies, FINAXA and the Generali groups might be offered for sale in the U.S. market at the time of the AXA S.A. shares on the New York Stock Exchange. This is expected to take place in 1996, the statement said.