Aegon NV, a big, Netherlands-based insurer with U.S. headquarters in Baltimore, agreed yesterday to pay $10.8 billion to acquire Transamerica Corp., the San Francisco insurer famous for its pyramid-shaped building.
If sealed as planned this summer, the deal would be the second-largest U.S. life insurance marriage in history, behind American International Group Inc.'s $18.2 billion acquisition of SunAmerica Inc. in August, analysts said. It would create the third-biggest U.S. life insurer.
Like most big corporate combinations in recent years, this one is driven by chances to trim overlapping costs and employees, and it raises unsettling questions for workers and their communities.
Aegon, which has about 1,000 employees in Maryland and more than 10,000 nationwide, is perhaps best-known here for its Monumental Life Insurance Co.
Aegon officials weren't forecasting any pain for Baltimore in the short term yesterday, but they weren't promising much gain, either.
"I wouldn't expect Baltimore to gain many jobs or lose any," said Donald J. Shepard, the Baltimore-based chairman, president and chief executive of Aegon USA. There would be "no effect at all" on Monumental Life and Aegon's Baltimore-based Home Services division, added Shepard, who initiated the merger in October with a call to Transamerica boss Frank C. Herringer.
Executives haven't figured precisely how to reap $150 million in promised annual cost savings between Aegon and Transamerica, but Shepard said they've identified overlap in corporate operations and data processing.
The headquarters of the combined U.S. operation would be in San Francisco, Aegon said, although exactly what that means is unclear. Shepard, 52, who will continue living in Maryland, would be president and chief executive of the merged company and would run all its U.S. insurance operations, which make up the bulk of the business.
"Key executive and administrative functions will continue in their current locations," Aegon said.
Herringer, Transamerica's 56-year-old chairman and chief executive, would become chairman of the combined company and would run commercial finance, leasing, real estate information and Asian operations. Shepard and Herringer would sit on the executive board of Aegon NV, the Dutch parent company overseen by Chairman Kees J. Storm.
Valuable brand name
Aegon will not only keep the Transamerica name but will paste it onto some of its own products, although it wasn't specific about which ones. Winning the well-known Transamerica brand was seen by financial analysts as a key benefit for Aegon in the acquisition.
"It makes sense from both sides," said Eric Berg, an insurance analyst with CIBC Oppenheimer in New York. "Aegon gets a great name, access to one of the fastest-growing businesses in life insurance, which is the life reinsurance business, and access to agents that serve older, wealthier Americans."
Aegon has steadily been adding to its U.S. business, buying Louisville, Ky.-based Providian Corp. two years ago. Transamerica, with $58.5 billion in assets at the end of last year, was widely seen as too small to exist on its own. Aegon USA had $63.7 billion in assets at the end of 1997; Aegon NV, $135.2 billion. Aegon won't release 1998 results until March.
"They had long been rumored to be shopping for a U.S. property," said Cathy Seifert, who follows insurance stocks for Standard & Poor's in New York. "Transamerica is a company with some very good franchises that they haven't made the most of."
Transamerica, which was once affiliated with the Bank of America, has built its reinsurance and real estate services businesses nicely, analysts said. Aegon has no life reinsurance. But Transamerica has lagged in offering variable annuities, retirement products with a stock-market ingredient that have been a fast-growing segment recently.
Aegon has gained a network of more than 17,000 Transamerica agents to sell its own products, analysts said, and also gains a big footprint in Canada.
"Transamerica is a visible name, and with the Aegon muscle behind them, they'll be able to push ahead," said Seifert.
"It makes us a much stronger company," said Shepard. "We never had a very strong brand name in the U.S., and this gives us one. We like the fit very much."
The acquisition, which bears a price of $9.7 billion in cash and stock plus assumption of $1.1 billion in Transamerica debt, got its start last fall, when Shepard called Herringer and the two met in a Houston restaurant, according to both men.
Aegon will pay 70 percent in stock and 30 percent in cash for Transamerica.
Local impact uncertain
Shepard's prominence in the merged operation and his promise to spare Baltimore jobs reassured Maryland-based analysts and business leaders, but nothing is sure in the rapidly evolving financial-services business.
James T. Brady, a former Maryland economic development secretary who dealt closely with Aegon after it bought Providian in 1997, said yesterday that Aegon's decision not to move to Louisville then "is a great testament to their commitment to the state. They feel the insurance environment in Maryland is a positive one."
Richard C. Mike Lewin, the present secretary, called Shepard's expectation of status quo in Baltimore "excellent news," although he hadn't spoken to Aegon officials. The state has been talking to Aegon about potential financial incentives to keep or expand operations in Maryland, Lewin said.
Most of Aegon's Maryland employees are in a building on Centre Street in downtown Baltimore, where the company moved last year.
Even if Aegon moves no new divisions to Baltimore, it operates in one of the fastest-growing businesses in finance and could eventually grow here anyway, said Anirban Basu, an economist with the Regional Economic Studies Institute at Towson University.
"Life insurance is the big piece," he said. "Aegon becomes the third-biggest life insurance firm in the United States, and frankly I'm surprised that insiders are saying there's no net gain for Baltimore. Life insurance, I predict, will be a rapidly growing market over the next five to 10 years."
But Shepard made clear that Aegon is not wedded to Maryland.
"We have lots of good employees in Baltimore. Baltimore has a lot to add," he said.
But when asked if the company would stay in Baltimore long-term, he said: "I would never say that. It really depends on how things are in Baltimore. I continue to say the state income tax is an issue when you are recruiting. We keep working around it. We want to make it work in Baltimore."
The deal must receive approval by regulatory officials and the shareholders of both companies.
Wall Street approved yesterday's merger. Aegon shares rose by $5.13 yesterday on the New York Stock Exchange, closing at $99.88. Transamerica shares popped by $15.25 to $72.88.
Pub Date: 2/19/99