The Hague-based life insurance, pensions and asset management company, AEGON N.V. (AEG) has declared the divesture of its Canadian life business to Bermuda-based reinsurer Wilton Re Holdings for $532 million. The transaction is expected to close in the first quarter of 2015, subject to regulatory approval.
However, the market did not seem to respond favorably to the news, as the stock price fell 2.6% in the last trading session post announcement.
The sale price implies a multiple of 23 times net underlying earnings, with the Canadian business making a net profit of $23.1 million in the 12 months and $1.6 billion of shareholders' equity excluding revaluation reserves on an IFRS basis to Jun 2014. This deal is expected to incur a book loss of $1.1 billion.
Aegon’s decision to vend was because the company did want to be part of a market where it was not a leader. However, Aegon believes that even with the divestiture of the Canadian life business, it will continue to offer competitive options to its customers and employees in the Canadian markets.
The multi-line surer will reserve the sale proceeds to further reduce its outstanding debt by the redemption of the 4.125% senior bond worth $640 million and 4.625% senior notes worth $500 million due on Dec 2014 and 2015 respectively.
The combination of the sale and the debt reduction will result in improvement in Aegon’s return on equity by 40 basis points (bps) and reduce net underlying earnings by less than 1%. The company’s leverage ratio is expected to remain the same while the fixed charge cover ratio will likely improve by 0.6 times.
Currently, Aegon has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks that are worth reckoning in the same industry include American International Group, Inc. (AIG), Horace Mann Educators Corp. (HMN) and Swiss Re Ltd (SSREY). All of these have a Zacks Rank #2 (Buy).
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