Aegon N.V., the Dutch insurer with its U.S. headquarters in Baltimore, signed a definitive agreement to acquire Providian Corp.'s insurance business in a deal valued at $3.5 billion, the companies said yesterday.
Aegon officials called the transaction with the Louisville, Ky.-based Providian the largest life insurance acquisition ever in the United States.
The deal increases Aegon's assets by 25 percent to $117.4 billion, and it will make Baltimore-based Aegon USA the country's ninth largest life insurer, up from 15th position.
"This is a big deal," said Donald J. Shepard, chairman and chief executive of Aegon USA, who will oversee Providian's operations when the merger is completed in the first half of 1997. "Their insurance operations have a good fit with ours."
Wall Street thought so too.
Aegon's shares jumped $5.875 to close at a record $62.875 yesterday, while Providian shares slumped $1.125 a share to close at $51.625.
Analysts like the deal for Aegon because it is paying just $28 for each share of Providian's common stock.
If Aegon's shares increase or decline more than 20 percent before the closing, which is expected in the first half of 1997, the deal can be renegotiated.
Providian would pay Aegon a $100 million "break-up fee" if another company offers a higher bid.
Aegon will not acquire Providian's highly profitable banking operation, which will be spun off as an independent company. Providian shareholders will receive shares of the bank, which analysts estimate to be worth around $23 each.
Aegon will finance the transaction by issuing 26 million new shares. It will also buy about 20 million shares from its largest stockholder.
The transaction will have an immediate positive impact on Aegon's earnings per share, the company said.
"To me, it looks like Aegon comes out very nicely," said Ira Zuckerman, an analyst with Nutmeg Securities, a Westport, Conn.-based brokerage firm. "It is a pretty cheap buy."
Providian's stock fell because "everybody was assuming a bidding war and there was no bidding war," Zuckerman said.
Zuckerman said life insurers are racing to build size, and the Providian acquisition is a good move for Aegon.
"You have to get bigger to be competitive in terms of lower expenses, in terms of marketing clout," he said.
Aegon USA operates Monumental Life Insurance Co. and Monumental General Insurance Group out of Baltimore. The company employs about 800 workers here. Its worldwide headquarters are in the Netherlands, where Aegon is that country's second-largest insurer.
The deal dramatically increases the size of Aegon's U.S. operations, and of Monumental Life Insurance.
Monumental's strength is selling life insurance and other products to consumers who make less than $50,000 a year. It employs 900 agents and it is strong in Maryland, Illinois, and Virginia, although it is licensed to sell insurance in 49 states, said Larry Jenkins, chairman and chief executive of Monumental Life Insurance Co.
Aegon picks up Providian's Agency Group, which also sells life, accident and health, property and casualty insurance and other services primarily to low and middle income consumers.
Providian employs 2,500 agents and it operates in states that include Florida, Georgia, the Carolinas and Kentucky.
"We will be able to extend our territory and where we have overlap it will give us larger agencies," Jenkins said. He expects Aegon to cut costs by consolidating operations. "To the best of my knowledge, we won't have any job losses in Baltimore," he said. "We know we will save money through some consolidation. Where it will occur, no one knows at this time."
Shepard said Aegon had not yet looked at where costs can be cut. "We will look at our whole operation," he said. "In the long run we will still do what's best for the shareholder."
Irving W. Bailey, Providian's chairman, said in a statement the deal "provides our insurance activities with a committed partner and a solid platform for future success, while freeing Providian Bancorp to develop its considerable potential as an independent consumer lending specialist."
Pub Date: 12/31/96