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Nov-06-2009UPDATE 3-Citi to raise up to $100 mln in Primerica IPO(topic overview)
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NEW YORK, Nov 5 (Reuters) - Citigroup Inc ( C.N ) said on Thursday that it plans to sell shares of its Primerica Inc life insurance business to the public, as the bank looks to shed assets outside its main businesses. Citigroup tried earlier this year to sell Primerica, an insurer that specializes in door-to-door sales, but failed to do so. [1] NEW YORK — Citigroup Inc. filed plans for an initial public offering of its Primerica Inc. life insurance unit late Thursday, and said it will sell the rest of the unit after it goes public. Divesting Primerica is part of Citi's effort to simplify its operations and raise cash. The bank, one of the hardest hit during the credit crisis and recession, has reported huge losses in the past two years as its investments and consumer loans and credit cards soured.[2]
Citigroup plans to sell up to $100 million in Primerica shares in the initial public offering and will receive all the proceeds from the stock sale. The bank tried to sell Primerica earlier this year, but failed to find a buyer.[3] Citigroup hopes to sell the rest of Primerica as soon as possible. Primerica's accounting value overall, as measured by the book value of its equity, was $4.6 billion as of the end of June. Most of that value is from its insurance policies, which will by and large not be part of the initial public offering. The IPO will help Primerica offer shares to its sales staff as an incentive, the company's registration statement said.[4] In a regulatory filing Thursday, Primerica laid out plans to sell shares of itself via an initial public offering of stock. Citigroup will pocket the proceeds from the IPO and said it will sell the remainder of its Primerica holdings "as soon as practicable" following the IPO.[5]
Citi will sell all the Primerica shares being offered in the IPO, and receive all proceeds from the stock sale.[2]
The bank wouldn't say how much it expects in proceeds, or how much it would own after the IPO, only that up to an estimated $100 million of stock would be sold. Primerica, which has about 100,000 sales representatives, offers life insurance and investment products such as mutual funds and targets middle-income households.[6] Primerica has about 100,000 sales representatives selling life insurance and investment products like mutual funds, mostly to middle-income households. It earned $244.7 million on $1.09 billion in revenue in the first six months of this year, down from profit of $269.1 million on $1.19 billion revenue in the first six months of 2008. The unit has its roots in a company called A.L. Williams & Assoc., formed in 1977 to market term life insurance using independent sales representatives.[2]
Primerica is one of several businesses listed under Citi's so-called bad bank, Citi Holdings. Citi has been looking to divest a number of assets it placed within its Citi Holdings' portfolio earlier this year. The unit -- separate from its core Citicorp operations -- holds a combination of brokerage, insurance, and lending businesses as well as a pool of toxic assets. The company has been successful at selling some businesses, such as its Japanese asset management operations, but not so much with others, like CitiFinancial and Primerica. Citi said recently that it plans to sell its stake in the joint venture of its wealth management arm, Smith Barney and Morgan Stanley ( MS Quote ).[7] Citigroup received $45 billion in loans from the U.S. government, which now owns a 34 percent stake in the bank. It has also received guarantees to protect against losses on more than $300 billion in risky assets. As part of its efforts to recover, Citigroup is selling a wide range of the assets it acquired over the years as it became one of the world's largest players in banking, insurance and financial services. Last month, Citi sold its commodities trading unit and its Japanese brokerage. It has also sold some of its credit card assets. In September, CEO Vikram Pandit confirmed the bank plans to eventually sell the remaining stake in its Smith Barney brokerage venture to Morgan Stanley, which owns the other half. It is also reportedly looking to sell off branches in certain parts of the country.[2]
The company earlier said that it would eliminate 52 thousands jobs around the globe and planned a $10 billion cost cutting program. The company is also pulling out some of its operations and divesting assets it acquired over the years, in order to focus on its core financial services competencies. Citigroup, which has been rescued by three U.S. government bailouts, is currently abandoning its acquisition-fueled growth strategy that built the company from a small consumer-finance business into one of the world's largest financial institutions.[8]
NEW YORK ( TheStreet )-- Citigroup's ( C Quote ) Primerica financial services and insurance unit is going public. [7] Shares will be given to some Primerica employees and sales force leaders alongside the offering, and the unit plans to create a Primerica equity award compensation program. "These incentives will give us new ways to motivate our sales force," Primerica's registration statement said.[4] Primerica filed a registration statement with the Securities and Exchange Commission on Thursday for the initial public offering, saying it plans to raise as much as $100 million.[7] Citi said it announced an initial public offering for Primerica Inc., which sells mainly term-life-insurance policies and other investment and deposit products, and refers loans to Citi.[6] Primerica underwrites term life insurance, as well as offering mutual funds, variable annuities, loans, among other financial products.[7] Primerica will retain its operating platform and infrastructure and continue to administer all policies subject to these reinsurance agreements. As a result of the Citi reinsurance transactions, the revenues and earnings of Primerica's term life insurance segment are expected to initially decline in proportion to the amount of revenues and earnings associated with its existing in force book of term life insurance policies ceded to Citigroup.[8]
The life insurance portion of Primerica was founded in 1977, but the company also has roots in American Can Co, a food packaging business that Gerry Tsai built into a financial conglomerate. Tsai made the mistake of paying too much for brokerage Smith Barney using borrowed money, forcing him to sell Primerica to Sandy Weill's Commercial Credit in the late 1980s.[4] The company expanded rapidly to become one of the country's largest life insurance sellers, and went public in 1982.[2]
The dismantling of Citigroup Inc. continued Thursday, as the banking company unveiled plans to spin off its Primerica Inc. life-insurance and mutual-fund sales unit. [5] Primerica had been an early target for divestiture, though no buyer was found. Earlier this year, Pandit decided to separate businesses that don't fit with his focus on retail, commercial, and investment banking into a separate division, Citi Holdings. Primerica was one unit that didn't fit with Pandit's vision of banking.[6] Citi approached several private-equity firms about the potential purchase of the unit. It said it intends to divest its remaining interest in Primerica after completion of the offering. "We believe is the best separation alternative for this franchise," Citi Holdings Chief Executive Michael Corbat said in a press release.[6]
Primerica distributes financial products to middle income households in North America through approximately 100,000 representatives, according to a release by Citi. [7]
Citi will sell all the shares being offered, and receive all proceeds from the IPO.[9]
Citigroup received $45 billion in federal bailout money to stay afloat, and the government now owns a 34 percent stake in the bank. In order to recover, Citigroup is selling off its nonbanking businesses. [3] Citigroup, the nation's third-largest bank, has received $45 billion in bail-out funds in three tranches from the Treasury's TARP Capital Purchase Program.[8]
In the first half of 2009, it had earnings of $244.7 million on revenue of $1.09 billion, down from $269.1 million and $1.19 billion, respectively. [6] The $100 million value for the sale may be increased if demand is strong enough.[4]
SOURCES
1. UPDATE 1-Citigroup to sell Primerica shares to public | Reuters
2. The Associated Press: Citi files plans to spin off Primerica in IPO
3. Citigroup Plans I.P.O. of Its Primerica Unit - DealBook Blog - NYTimes.com
4. UPDATE 3-Citi to raise up to $100 mln in Primerica IPO | Deals | IPOs | Reuters
5. An IPO of Primerica Will End a Citi Era - WSJ.com
6. UPDATE: Citigroup Plans IPO For Primerica Life-Insurance Unit
7. Citi's Primerica Seeks $100M Through IPO | Financial Services | Financial Articles & Investing News | TheStreet.com
8. RTTNews - Breaking News, financial breaking News, Positive EPS Surprises, Stock research .
9. The Associated Press: Citi files plans to spin off Primerica in IPO
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