"However, if the bidders do return with an offer of $A6 or more, we believe it may be difficult for the independent directors to reject the offer a second time."
Craigs yesterday increased its price target to $A6 ($NZ7.52) from $A5.01, which constituted a 20% control premium, while making no change to forecasts.
AMP announced on Monday a proposed joint acquisition of AXA AP in combination with AXA parent company AXA SA.
AMP intends acquiring the Australian and New Zealand operations of AXA for $A4 billion, while AXA SA intends acquiring the Asian operations for about $A7.7 billion.
The offer values AXA's shares at $A5.56.
Mr Timms said although the initial offer had been rejected by the AXA AP board, he believed a second offer was the most likely outcome. An offer of $A6 would imply a 10% lift from the value of Monday's closing prices.
"In our view, AXA's first-half performance highlighted that the business had stabilised following a disappointing full-year 2008 and we remain optimistic about its longer-term prospects. This, in our view opportunistic offer, highlights that longer-term, there is considerable potential value in the business even though near-term headwinds remain," Mr Timms said.
Reuters reported that French insurer AXA SA's bid for full control of its majority-owned Asian subsidiary represented a desire to have a tighter grip on the region's strong growth potential.
The insurance market in Asia is growing faster than in Europe or the United States, with Ping An Insurance (Group) Co of China Ltd and China Life strong rivals.
An AXA spokesman in Paris declined to comment on whether the initial offer for AXA AP would be raised.
AXA will finance the buyout plan for its Asia Pacific subsidiary with a 2 billion ($NZ4.14 billion) rights issue.
The rights issue was set as a 1-for-12 issue at a price of 11.90 - a discount of about 30% to AXA's closing share price on Friday of 16.88.
AXA said the rights issue would also give it cash for acquisitions in other fast-growing areas, such as central and eastern Europe.
"AXA's exposure to fast-growing markets is weak," CM-CIC Securities said in a research note.
"This deal, along with others made possible by the rights, will help AXA significantly increase its market share," added CM-CIC, which raised its rating on AXA to "buy" from "accumulate".
AXA will get further cash for possible acquisitions from the planned sale of a 15.6% stake in Taikang, China's fourth-biggest life insurer .
Sources told Reuters on Monday the stake had attracted foreign and domestic bidders, including Temasek and Blackstone, with the holding valued at more than $US1 billion ($NZ1.35 billion).
Other bidders included Bain Capital, KKR , and two Chinese private equity firms, Hopu Investments and Hony Capital, according to sources with direct knowledge of the situation.
AXA inherited the stake in Taikang in 2006 when it agreed to buy Swiss insurance company Winterthur.
Mandarine Gestion fund manager Fabienne Girard-Tokay said China would remain a key market for AXA, despite its planned Taikang stake sale.
"The Taikang sale shows the difficulties Western firms sometimes have working with Chinese partners," she said.
"But it does not mean that AXA is abandoning China. The Taikang withdrawal does not mean that AXA is abandoning the principle of investing in China," said Ms Girard-Tokay, who added that she would subscribe to AXA's rights issue.
In China, AXA also has AXA-Minmetals Assurance Co Ltd, a 51/49 joint venture between AXA Group and state-owned China Minmetals Group, which has no relation to Taikang, and AXA plans to invest more in AXA-Minmetals to expand its insurance coverage to more Chinese cities, sources told Reuters.
AXA's plans to expand in Asia come as banks and insurers prepare for a possible wave of consolidation as companies make plans for a recovery from the global financial crisis.
