Zurich Financial Services, Switzerland’s largest insurer, agreed to pay as much as $2.1 billion for 51 per cent of Banco Santander’s insurance business in Brazil, Mexico, Chile, Argentina and Uruguay.
The Zurich-based company will make an initial payment of $1.67 billion with Santander receiving as much as $420 million over the next 25 years depending on the performance of the unit, the Swiss insurer said today in an e-mailed statement. Zurich will manage the insurance joint-venture.
The acquisition will make the Swiss insurer the fourth-largest in Latin America, after Banco Bradesco, Mapfre and Itau Unibanco Holding, Zurich said. It will also gain access to more than 5,600 Santander branches and 36 million customers in the region through a 25-year distribution agreement.
“It’s an interesting and promising deal, because they achieve scale in the biggest Latin American markets Mexico, Brazil and Argentina,” said Stefan Schuermann, a Zurich-based analyst with Vontobel Holding. “It’s in line with Zurich’s focus to grow Asian and Latin American operations.”
The transaction is between 1.9 to 2.1 times book value, according to a presentation on Zurich’s website. Last October’s bid by Apollo Global Management and CVC Capital Partners. for Brit Insurance Holdings was priced at about 1 times book value.
Latin American share
Zurich fell 0.7 per cent to 268.4 francs as of 1.37 pm local time, paring this year’s gain to 11 per cent. The 27-member Bloomberg Europe 500 Insurance Index was also down 0.7 per cent. Santander dropped 1 per cent to ¤8.86 in Madrid trading.
The joint venture will double the contribution of Latin America to about 8 per cent of the company’s total revenue and furthers Zurich strategy of expanding into emerging markets where people are taking out auto or life insurance for the first time. Zurich and Santander would have produced $3.9 billion in gross written premiums plus $2.9 billion in pension contributions in 2010, the Swiss insurer said.
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“Santander’s Latin American insurance operations offer a rare combination of high growth potential and strong cash flow generation,” Zurich Chief Executive Officer Martin Senn said in today’s statement. The insurer expects to complete the agreement in the first half of this year.
The Swiss company aims to increase the contribution of new business from Asia and Latin America to 30 per cent of the life insurance total by 2013 from the current 15 per cent to 20 per cent, Zurich told investors on December 2.
Boosting earnings
Zurich plans to finance a majority of the payment from existing cash, with the balance financed through the issuance of hybrid debt, Chief Financial Officer Dieter Wemmer told journalists during a conference call.
The acquisition is expected to add to Zurich’s earnings per share immediately and will aid achieving its return-on-equity target of 16 per cent over the medium term, the company said. The new business value for 2010 was estimated at $160 million, Wemmer said.