LONDON, April 26, 2001 (PRIMEZONE) -- 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 (EURO 441 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 utilize 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 December 31, 2000. In the year ended December 31, 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. On December 31, 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 (EURO 233 million) in cash and $300 million (EURO 208 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 March 2, 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 May 1, 2001, with licenses 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, who will report 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. "
Attachments: http://reports.huginonline.com/817894/89050.doc
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.