French insurer AXA bid for full control of its majority-owned Asian arm on Monday, seeking a tighter grip on the region's strong growth potential.

The insurance market in Asia is growing faster than Europe and the United States, with Ping An Insurance (Group) Co of China Ltd <601318.SS> and China Life <601628.SS> strong rivals.

AXA announced a two-stage deal: First, AXA's regional partner AMP of Australia will buy all of AXA Asia Pacific , including the 54 percent owned by parent AXA, in a deal valuing the target at about $10.3 billion. Then, AMP will sell most of the business to AXA for about $7 billion, keeping the Australian and New Zealand units for itself.

AXA Asia Pacific rejected the proposal, saying it undervalued the business, but analysts said it was likely the parties involved would find an agreement.

The deal has an implied value of A$5.43 per AXA Asia Pacific share. The stock soared 32.5 percent to A$5.70, well above the offer price.

The deal will probably get done, although AXA won't be prepared to overpay, said Mandarine Gestion fund manager Fabienne Girard-Tokay.

AXA Asia Pacific is one of the jewels in the crown and it's a very good idea to buy out the minority shareholdings, added Girard-Tokay, whose firm owns AXA shares.

An AXA spokesman in Paris declined to comment on whether the initial offer for AXA Asia Pacific would be raised.

AXA RIGHTS ISSUE

AXA will finance the buyout plan for its Asia Pacific subsidiary by a 2 billion euro ($3 billion) rights issue.

The rights issue was set as a 1-for-12 issue at a price of 11.90 euros -- a discount of around 30 percent to AXA's closing share price on Friday of 16.88 euros.

AXA was down 1.2 percent at 16.68 euros in early trade in Paris.

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.

TAIKANG SALE

AXA will get further cash for possible acquisitions from the planned sale of a 15.6 percent stake in Taikang, China's fourth-biggest life insurer.

Sources told Reuters on Monday that the stake had attracted foreign and domestic bidders, including Temasek and Blackstone , valuing the holding at more than $1 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's 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 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.

Germany's Allianz , which ranks alongside AXA as Europe's top insurer, on Monday posted forecast-beating quarterly earnings but warned that economic weakness was still affecting demand.

(Additional reporting by Sudip Kar-Gupta; Editing by Andrew Callus)

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