MetLife Inc. (MET:US), the largest U.S. life insurer, agreed to buy Chilean pension manager AFP Provida SA (PROVIDA) from Banco Bilbao Vizcaya Argentaria SA (BBVA) in a deal valued at about $2 billion to add fee income in Latin America.
MetLife will conduct a public cash tender offer for all of the outstanding shares of Provida, the insurer said in a statement. BBVA has agreed to transfer its 64.3 percent stake to MetLife, according to the statement.
MetLife is expanding in faster-growing markets with the Provida deal, after acquiring American Life Insurance Co. in 2010 to build operations in Asia and Europe. Chief Executive Officer Steven Kandarian has set a goal of generating at least 20 percent of operating earnings from emerging markets by 2016 as he targets return on equity of 12 percent or more.
“It fits in well with many parts of their strategy,” Jimmy Bhullar, an analyst at JPMorgan Chase & Co., said in an interview before the deal was announced. “It seems like it’s a good business.”
Chile’s economy is projected to expand by 4.5 percent this year, compared to U.S. growth estimated at 2 percent, according to economists’ estimates compiled by Bloomberg. Low interest rates and slow economic growth have weighed on results at New York-based MetLife.
With the acquisition of Provida, MetLife’s operating earnings from emerging markets are expected to grow to about 17 percent from 14 percent currently, according to the statement. The deal, which MetLife expects to complete in the third quarter, will boost earnings by 5 cents a share this year and by 15 cents in 2014, MetLife said.
“MetLife is delivering on a key component of our strategy – expanding our presence in emerging markets,” Kandarian said in the statement. “The acquisition also supports our focus on shifting our business mix to less capital intensive products.”
Provida will pay its excess cash to existing shareholders before the deal closes, MetLife said. The Chilean company will also give shareholders proceeds from sales of Provida’s stakes in businesses in Mexico and Peru, which MetLife isn’t buying. MetLife said the business it is acquiring had net income of about $189 million in the 12 months ended Sept. 30.
Provida shares dropped 6.3 percent to 3,250 pesos at 9:59 a.m. in Santiago. MetLife had said earlier this week it was in talks to buy Provida.
BBVA has sought buyers for its pension-fund assets in Chile, Mexico, Peru and Colombia this year as it attempts to recover from Spain’s real estate slump. It agreed in November to sell the Mexican operation to a group of local buyers for $1.6 billion.
MetLife purchased Alico for about $16 billion from American International Group Inc. (AIG:US) in 2010 to expand beyond the U.S. The unit had about 12,500 employees and operations in more than 50 countries at the time.
MetLife follows Principal Financial Group Inc. (PFG:US) in reaching a deal to acquire a manager of Chilean retirement funds. The Des Moines, Iowa-based insurer agreed in October to buy AFP Cuprum SA (CUPRUM) for about $1.5 billion, boosting fees from managing assets.
Provida, the largest pension fund manager in Chile, had about $45.3 billion under management and 1.8 million contributors as of Sept. 30, according to the statement. Chilean pension providers, called AFPs, manage a total of $160 billion in assets, according to the country’s pension regulator.
Chile requires workers to contribute a portion of their pay to a private retirement account, and people with more income can save additional cash in voluntary accounts. The country pioneered the private pension system in 1981 under dictator Augusto Pinochet to build up the country’s savings rate, help develop its capital markets, and reduce the long-term strain on its budget.
MetLife grew in Japan, Australia and the U.K. with the $11.7 billion purchase of Travelers Life & Annuity from Citigroup Inc. in 2005. The company bought Mexico’s biggest life insurer, Aseguradora Hidalgo SA, for about $962 million in 2002, and entered the Brazil dental market with a 2008 acquisition, after opening for business in the country in 1999. It added Banco Santander SA’s Chilean insurance units in 2001 for more than $200 million.
Bank of America Corp.’s Merrill Lynch advised MetLife on the transaction. Skadden, Arps, Slate, Meagher & Flom LLP and Prieto y Cia. were the insurer’s legal advisers.
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