The deal also provides access to Citigroup distribution channels for 10 years
By Steven Tuckey
MetLifes $11.5 billion acquisition of Travelers Life & Annuity announced last week will push the company to the No. 1 ranking in individual life insurance sales in this country as well provide valuable new distribution outlets.
But most rating agencies and analysts are giving the deal only two cheers while they sort through just how it will all be financed.
MetLife and Citigroup, parent of Travelers L&A, also have entered into a 10-year distribution agreement in which MetLife will have access to such Citigroup distribution channels as Smith Barney, Citibank branches and Primerica in the U.S., along with a number of international businesses.
The boards of both companies have approved the transaction set for completion this summer.
In addition to the top life insurance sales spot, the deal also will make MetLife the largest retirement plan provider based on sales and largest provider of group annuity plans, according to Sanford Bernstein. It also would be close to the top of the industry in individual annuity sales.
For MetLife Chairman and CEO Robert Benmosche, the transaction represents the big move Wall Street has been waiting for ever since the companys demutualization in 2000 set the stage for it.
“The distribution agreements will provide us with the broadest distribution network in the industry,” Benmosche said.
For Citigroup, the deal represents one of the first major moves in the post-Sanford Weill era as CEO Charles Prince attempts to get out of the slow growth business of underwriting insurance and deploy capital in ventures where high teens growth prospects are the norm.
MetLife estimates the transaction will increase its earnings per share by about 4% to 6% next year.
Under the terms of the deal, Citigroup will receive $1 billion to $3 billion in MetLife equity securities and the balance in cash. The company may finance the cash portion through a combination of cash on hand, debt, mandatory convertible securities and selected assets sales. The ultimate plan will depend on market conditions and the relative attractiveness of funding alternatives.
Sanford Bernstein analyst Suneet Kamath estimates the price paid by MetLife represents a 25%-30% premium based on normalized Travelers L&A financials. He asserted the advantage gained by MetLifes new entry into numerous distribution channels as well as foreign markets will be counter-balanced by the limitations it is putting on its financial flexibility.
“Said another way, MetLife is putting a lot of its eggs in one basket,” he said in a research note to investors.