Marking the beginning of the end of its
12 years as a fully-fledged bancassurer, Citigroup has completed
the initial public offer (IPO) of a portion of Primerica, its life
insurance and financial products distribution arm.
Citigroup raised $320.4m in the IPO, which saw
it sell 21.4m Primerica common shares at $15 per share. The price
represented a price-to-earnings ratio of only 7.8 based on
Primerica’s reported net profit of $495m (1.93 cent per share) in
2009 on total revenue of $2.2bn.
Primerica attracted strong buying interest on
its first day as a listed company on the New York Stock Exchange (1
April) with is share price closing at $19.95 cent per share, up 33%
compared with its IPO price.
Citigroup now has a stake of about 43% in
Primerica which intends sell off “as soon as is practicable”. US
private equity firm Warburg Pincus was the largest buyer of
Primerica shares in the IPO and now holds a 23% stake. This could
rise to 33% if it exercises an option to buy additional shares.
Targeting middle income households in the US
and Canada, Primerica focuses on term life insurance, which it
underwrites, and the distribution of mutual funds, variable
annuities, loans and other financial products. With 100,000
licensed sales representatives, Primerica is the largest financial
services marketing organisation in North America
Primerica, headquartered in Georgia, insures
4.3m lives and has more than 2m clients who maintain investment
accounts through the company.
Announced in November 2009, the IPO followed
almost 18 months of speculation about Primerica’s disposal, with
mooted potential buyers having included private equity firm JC
Flowers and Warren Buffet’s Berkshire Hathaway.
The eventual IPO formed part of massive
restructuring of the troubled Citigroup, which in 2009 sold 15
business units, reduced staff numbers by 100,000 and cut total
assets by $500bn.
Citigroup, one of the big-four banks in the US,
was one of the biggest recipients of federal assistance, rescued
from failure in November 2008 by the first in a series of rescue
packages that eventually totalled $45bn.
Assistance first came in the form of $20bn
under the Troubled Asset Relief Program and was followed by the US
Treasury taking a 36% stake in Citigroup for $25bn. This stake fell
to 27% following a $17bn share issue by Citigroup in December
Citigroup was formed in 1998 following a $140bn
merger between US bank Citicorp and composite insurer and financial
services provider Travelers Group which created the world’s largest
financial services company. Primerica, which has its origins in
product distribution and life insurance, had acquired full control
of general insurer Travelers Insurance in 1993 and changed its name
to Travelers Group in 1995.
The Primerica brand again came to the fore
following creation of Citigroup which spun-off the general
insurance operations of Travelers Group in 2002.