Aegon Sells Guardian Life Unit for $449 Million to Cut Costs in Britain
August 17, 2011 by Maud van Gaal
By Maud van Gaal – Aug 16, 2011
Aegon NV (AGN), the Dutch owner ofScottish Equitable, agreed to sell its U.K. Guardian life and pension unit to private equity firm Cinven Ltd. for 275 million pounds ($449 million) as it tries to cut costs in Britain.
The unit had a book value of 271 million pounds at the end of June, The Hague-based insurer said in a statement today. Aegon’s asset management unit will continue to manage Guardian’s 7.4 billion pounds in assets for Cinven. The business had been closed to new clients since 2001.
The insurer is seeking to boost its return on capital in the U.K. to as much as 10 percent by 2015 by cutting costs and shifting capital to higher margin businesses. Aegon last week said it was on track to reduce costs in the U.K. by 25 percent by the end of the year. Since announcing the plan in June 2010, the insurer has withdrawn from the bulk annuities market, closed its employee benefits business and sold its third-party pensions administration business in the U.K.
“The price received seems reasonable,” Albert Ploegh, an Amsterdam-based analyst at ING Groep NV said in a note to clients. “The repositioning of the U.K. business should result in a significant increase in profitability and cash flows.”
Aegon said the Guardian business’s embedded value, a measure of the long-term profitability, was 322 million pounds at the end of the second quarter, implying the book was sold for a discount of about 15 percent. That compares to a typical discount of 15 percent to 25 percent in sales of closed life books, according to ING’s Ploegh.
‘Committed’ to U.K.
Aegon slipped 1.2 percent to 3.16 euros as of 11:13 a.m. in Amsterdam today, in line with a 1.3 percent drop in the 28-company Bloomberg Europe 500 Insurance Index.
“Consistent with actions over the past three years to dispose of, or run-off, certain businesses deemed non-core, Aegon has concluded that managing the closed business of Guardian companies no longer fits with our strategic objectives,” Chief Financial Officer Jan Nooitgedagt said in the statement. “We remain committed to the U.K.”
Leveraged buyout firms such as Cinven pool money from investors to take over companies, financing their purchases mostly with debt, with the intention of selling them later for a profit. The firms seek to expand or improve performance at companies they acquire before selling them, usually within five years.
The firm, founded in 1977 by the Coal Pension Trustees Services Ltd., said closed life books are an attractive investment because they generate “robust long-term cash flows”with limited risks. Cinven expects to increase returns by adding other closed books as banks seek to sell insurance assets.
The acquisition gives Cinven “an attractive entry point into the U.K. closed life market and a strong platform from which to execute a consolidation strategy for the sector,” the London-based private equity firm said in a separate statement.
Lloyds Banking Group Plc (LLOY) provided debt financing for the acquisition, Cinven said.
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