Aegon NV, Europe's third-largest insurer, agreed to sell most of its U.S.-based Transamerica Finance Corp. to a unit of General Electric Co. for $1 billion in cash tofree up capital after falling stocks eroded reserves.
GE Commercial Finance will also assume $3.8 billion in debtand take over some leasing receivables, bringing the proceeds forAegon to $5.4 billion, said Bob McGraw, Aegon's head of grouptreasury, in a phone interview. The purchase extends GE's buyingspree this year to about $9 billion, Bloomberg data show.
Aegon has been trying for four years to sell TransamericaFinance, a group of businesses it inherited with the purchase ofSan Francisco-based Transamerica Corp. in 1999. Aegon's sale comesafter European insurers including Allianz AG and Credit SuisseGroup's Winterthur unit have sold assets to bolster capital.
"People who were worried about the company's balance sheetcan now sleep better again," said Gert-Jan Geels, a fund managerat Eureffect BV in Amsterdam, which bought Aegon stock today.
Shares of Aegon, based in The Hague, jumped as much as 6.2percent, and were at 11.50 euros, up 41 cents, at 1:45 p.m. inAmsterdam. The stock has fallen 2.4 percent this year.
"This transaction is consistent with Aegon's strategy tofocus on its core business of life insurance, pensions and relatedinvestment products," the Dutch company said in a statement.
GE Expansion
For General Electric, the world's No. 1 company by marketvalue, the sale is part of Chief Executive Jeffrey Immelt's plan toexpand the Fairfield, Connecticut-based company's consumer andcommercial finance units to ensure growth of at least 10 percent.
The purchase gives General Electric a business with $8.5billion in managed assets including specialty finance units thatprovide leasing and commercial loans to manufacturers andtechnology companies.
General Electric yesterday agreed to sell its bond-insuranceunit for $1.9 billion to a group led by mortgage insurer PMI GroupInc. as part of a strategy to exit slower growing businesses andraise cash to bolster its finance units.
Aegon is left with Transamerica Finance businesses including aship container leasing division, a fleet of 19,000 trucks in Europeand a real-estate services unit with a combined $2.1 billion inmanaged assets.
"There's still more to come" from Aegon, said Bart Horsten,an analyst at F. van Lanschot Bankiers, who has a "hold"recommendation on Aegon stock. "They'll sell more in the shortterm."
Credit Rating
Aegon is selling assets to boost reserves after three years ofstock market declines and rising bond defaults eroded capital itneeds to write new business. The Dutch insurer had its long-termdebt rating cut to A+ by Standard & Poor's in April.
"Fears of a further downgrade are being pushed to thebackground with this sale," said Hortsen.
The Dutch company will book a net gain of $250 million on thesale, which will be used to strengthen shareholders' equity andwon't be included in net income, it said in the statement. Thecompanies aim to complete the purchase before the end of 2003.
Of the $3.8 billion in debt being assumed by General Electric,$2.4 billion is owed to Aegon. The company's $1 billion in netproceeds from the sale will be used to pay down debt.
The cost of insuring Aegon's debt against a possible defaulthas declined this year, signaling that investors view the insurer'screditworthiness as improving.
Less Risky
Aegon credit-default swaps, which pay out in the event of thecompany failing to make its debt payments, traded at about 32 basispoints, down from about 38 basis points yesterday, according toSociete Generale prices. A basis point is 0.01 percentage point.
That means it costs about 32,000 euros per year to insure 10million euros of Aegon debt for five years, down from 38,000 eurosyesterday, and less than half of the average cost of 70,000 eurosin the past six months.
Aegon's 1 billion euros of 4.625 percent bonds repayable inApril 2008 climbed by about 0.4 point to 102.66, according toDeutsche Bank AG prices. The bonds, sold in April yielding 1.37percentage points more than German government debt of similarmaturity, currently yield about 3.99 percent, or 0.61 points morethan government notes.
General Electric, rated Aaa by Moody's and AAA by S&P, owesits bondholders about $184 billion, of which about $14 billion isrepayable this year with about $46 billion maturing next year.
