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Assicurazioni Generali SpA (G), Italy’s biggest insurer, agreed to buy the 49 percent stake it doesn’t own in its eastern European venture with private-equity firm PPF Group NV for 2.5 billion euros ($3.3 billion).
Generali will acquire about half the stake by March 28 for 1.29 billion euros and the rest at the end of 2014, the Trieste, Italy-based company said in a statement today. The insurer will use proceeds from bond sales in December to finance the first purchase and part of the amount will return to Generali as reimbursement of PPF’s debts.
Generali and Amsterdam-based PPF, controlled by Czech billionaire Petr Kellner, formed the joint venture in 2007, combining their insurance assets in eastern Europe to create a company with 9 million customers in 12 countries. Generali Chief Executive Officer Mario Greco, who pursued the deal as part of a plan to boost profit from emerging markets, said the insurer won’t need a capital increase to fund the second tranche.
“The deal is positive because it allows Generali to take the control of the venture without need of capital increase,” Alberto Villa and Michele Ballatore, analysts at Intermonte SIM SpA, who have an outperform recommendation on the stock, wrote in a note today.
Generali rose as much as 1.7 percent, and was up 1.3 percent to 14.54 euros at 9:25 a.m. in Milan, giving the company a market value of 22.6 billion euros. The Bloomberg Europe 500 Insurance Index (BEINSUR) fell 0.7 percent, paring its gain over the past six months to 27 percent. Generali rose 45 percent over that period.
The net amount payable in the first part of the purchase will be about 1.1 billion euros, the insurer said.
Generali doesn’t need external funding to pay the second tranche of the transaction, Greco said on a conference call. “Generali’s funding generation is enough to cover the purchase,” he said, ruling out any need of a capital increase.
The two companies also agreed to swap some assets, including the combined 38.5 percent stake in Russian insurer OEO Ingosstrakh, which will be transferred to Generali. The insurer will sell PPF its insurance operations in Russia, Ukraine, Belarus and Kazakhstan, in consumer finance insurance for 80 million euros.
“This transaction eliminates all uncertainty over our development strategy in central and eastern Europe and the resources required from the group to put it in place,” Greco said in the statement. “We’ll be able to take full advantage of our investment and focus on developing our core insurance business while improving competitiveness and profitability.”
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