| Thu 26 Apr 2001, 0:00 | | Old Mutual Plc - Acquisition Of F&g Life |
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OLD MUTUAL PLC
Proposed acquisition of F & G Life for US$635 million (GBP441 million)
Launch of new US life assurance business - Americom
Old Mutual plc ("Old Mutual"), the London-listed financial services company
(LSE:OML), has entered into an agreement with St. Paul Fire and Marine ("St.
Paul"), a subsidiary of The St. Paul Companies Inc. ("The St. Paul") (NYSE:SPC)
to acquire The St. Paul's subsidiary Fidelity and Guaranty Life Insurance
Company ("F&G Life"), a Baltimore-based fixed annuity and life assurance
specialist, for $635 million (GBP441 million) in cash and ordinary shares. The
acquisition is conditional upon the receipt of regulatory approvals.
In addition, Old Mutual is launching Americom - a complementary US fixed
annuity and life assurance operation with a powerful and distinctive
distribution system.
This twin entry into the world's largest life assurance and retirement savings
market further broadens Old Mutual's international business, which will now
provide over 27% of its global income.
Old Mutual will utilise some of the product development expertise in F&G Life
in the development of its product range in South Africa and, at the same time,
will draw on certain of its skills in the development of certain products in
the US.
Overview of F&G Life
F&G Life is a fast growing provider of fixed interest based retirement and life
assurance products. F&G Life distributes its products primarily through
independent agent networks known as Master General Agents ("MGAs"). F&G Life
had $5 billion of assets under management at 31 December 2000. In the year
ended 31 December 2000, F&G Life generated an after-tax operating profit of
$58.7 million on a US GAAP basis on statutory premiums of $1,160 million. At 31
December 2000, the net asset value of F&G Life stood at $571 million.
Terms of the Transaction
Old Mutual proposes to acquire F&G Life's equity, as well as the right to $50
million of surplus notes (subordinated debt), for a purchase price of $635
million, representing a multiple of 10.5x adjusted after-tax operating earnings
and 1.0x unlevered US GAAP book value. The transaction is expected to be
immediately earnings enhancing in the current year. Synergies are expected to
be between $5-10 million, achievable by 2002.
Old Mutual will effect the proposed acquisition of F&G Life through a payment
of $335 million (GBP233 million) in cash and $300 million (GBP208 million) in
ordinary shares to St. Paul. The cash portion of the proposed acquisition will
be financed from internal resources, including committed credit lines.
The price paid is subject to adjustment in certain circumstances, including the
issue of additional Old Mutual shares as consideration or the payment of up to
an additional $40 million in cash if, after one year, the value of the shares
issued to St. Paul falls below $300 million. Equally Old Mutual has the right
to call any gain in value of the shares in excess of $30 million after one
year. St. Paul has agreed not to sell the shares received as consideration for
a period of one year following completion.
Upon completion of the acquisition Old Mutual expects its gearing ratio (total
debt/total debt + shareholders' equity) to be approximately 26% on a pro forma
basis. Old Mutual will provide an additional $85 million of capital to
strengthen the capital bases of F&G Life and Americom.
Launch of Americom
Americom is a Kansas City-based fixed annuity and life assurance provider,
which will build on the platform gained through the acquisition of Unified
Life, announced on 2 March 2001. Americom will provide significant additional
distribution power to Old Mutual's US life business by selling directly to
independent agents. Americom will commence its sales operations on 1 May 2001,
with licences in 44 states.
Management
The management of the two business will be led by Guy Barker, Chief Executive
of Old Mutual's US life operations reporting to Jim Sutcliffe. Guy was most
recently Managing Director of NatWest Life and was previously Chief Actuary of
Jackson National. Harry Stout will continue to act as President of F&G Life,
with his current management team reporting to him as at present. Americom will
be headed by Joe Sulzinger, who brings 10 years of experience in the direct
distribution of life insurance products in the US market.
The boards of directors of both Old Mutual and The St. Paul have approved the
transaction. The acquisition is subject to regulatory approvals, which are
expected to take several months, but should be completed by the end of the
third quarter.
Commenting on the transaction, Jim Sutcliffe, Chief Executive, Life of Old
Mutual said:
"These two announcements herald important milestones in our international
strategy. Firstly the acquisition has been achieved on attractive terms, at a
time when fixed annuities will benefit from added interest from US consumers.
Secondly Americom complements F&G Life by adding a new distribution channel .
I am delighted with the exceptionally strong management team we now have in
place in the US to drive growth in the world's largest market for life
insurance and retirement services."
Harry Stout, President of F&G Life, added:
"By agreeing to acquire F&G Life, Old Mutual have gained a company that
provides an immediate and proven product portfolio and distribution system for
the growing US market. This will translate into substantial added benefit and
value for customers, agents, employees and stockholders in the years ahead. "
26th April 2001
NOTES TO EDITORS
Old Mutual plc (www.oldmutual.com) is an international financial services
company based in London, with expanding operations in life assurance, asset
management, banking and general insurance. Old Mutual is listed on the London
Stock Exchange, as well as on the Johannesburg, Namibian, Malawi and Zimbabwe
stock exchanges.
The company operates the largest life assurance business in Southern Africa,
through which it provides life, disability and health insurance, retirement
savings and investment products to individuals and groups. Plans to start life
assurance operations in India, the UK and the USA have recently been announced.
During 2000, Old Mutual acquired Gerrard Group and United Asset Management
Corporation, bringing total group assets under management to about GBP170
billion at 31 December 2000. Old Mutual owns 53.4% of Nedcor, a leading South
African bank, and 51% of the South African general insurance company, Mutual &
Federal.
Fidelity and Guaranty Life Insurance Company (www.fglife.com) is a specialist
provider of fixed deferred and immediate annuities, term and universal life
insurance, structured settlement and tax-sheltered annuities. The company's
products are sold throughout the United States through master general agents,
independent agents, speciality brokerage firms, and in selected institutional
markets. Structured settlement annuities are sold predominantly through
property-casualty companies for use in settlement of certain of their insurance
claims. As at 31 December 2000 F&G Life had total assets of $6.3 billion
(GBP4.2 billion).
F&G Life employs 182 employees, most of them located in Baltimore, which will
remain its corporate headquarters after the acquisition is completed.
The St. Paul Companies Inc. (www.stpaul.com), based at Saint Paul, Minnesota,
is a group of companies providing property-liability insurance and reinsurance
products and services worldwide. The St. Paul reported 2000 revenues of more
than $8.6 billion (GBP6.0 billion) and total assets of $41 billion (GBP28.9
billion).
GLOSSARY OF INSURANCE TERMS
Fixed annuity - a tax-preferred savings vehicle of which there are two main
types:
- Interest sensitive annuities - premiums are largely invested in fixed
interest securities. The insurer determines a rate of interest which is added
periodically to determine benefits.
- Equity indexed annuities - premiums are largely invested in fixed interest
securities, but a portion is invested in equity index derivatives. The insurer
typically determines a rate of interest that is added periodically, and
benefits are enhanced in relation to the performance of the associated equity
index.
Structured settlement - a single premium immediate annuity purchased from a
life insurance company used to fund future payments in connection with a claim
filed by or on behalf of an injured party.
Tax-sheltered annuity - a form of tax-preferred deferred annuity specially for
school and charity employees (called 403(b) retirement plans) Both types of
fixed annuity are available.
ENQUIRIES:
Old Mutual plc, London
Jim Sutcliffe, Chief Executive, Life
Tel: +44 (0) 20 7569 0100
James Poole, Director, Investor Relations
Tel: +44 (0) 20 7569 0121
Old Mutual Life, US
Jim Morrison, Chief Marketing Officer
Tel: +1 (0) 913 402 2336
Old Mutual, South Africa
Julian Roberts, Group Finance Director
Tel: +27 (0) 11 447 3030
Fidelity and Guaranty Life Insurance Company
Mark Stone, Corporate Communications
Tel: +1 (410) 895 0050
Americom
Hollie Rusthoven
Tel: +1 (913) 461 6841
College Hill, London
Tony Friend
Tel: +44 (0) 20 7457 2020
College Hill, South Africa
Gareth David
Tel: +27 (0) 11 447 3030
There will be a presentation to analysts today at College Hill, 4th Floor, 78
Cannon Street, London EC4N 6HH and Nedcor Ltd, 105 West Street, Sandton at
2.30pm UK time/3.30pm SA time. A telephone conference facility will be
available for analysts who are unable to attend in person. Anyone wishing to
use this facility is invited to contact College Hill for details.
Dresdner Kleinwort Wasserstein and Merrill Lynch & Co. acted as financial
advisors to Old Mutual for the purposes of the acquisition of F&G Life.
Dresdner Kleinwort Wasserstein is regulated by The Securities and Futures
Authority Limited, and will not regard any other person as its customer in
relation to this transaction. In this notice, "Dresdner Kleinwort Wasserstein"
means Kleinwort Benson Limited. Weil, Gotshal & Manges LLP acted as legal
counsel to Old Mutual. Goldman Sachs & Co. acted as financial advisors and
Sullivan & Cromwell acted as legal counsel to The St. Paul.
