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Aegon buys Transamerica
February 18, 1999: 12:46 p.m. ET

Insurance industry consolidation, 'cultural fit' spur $10.8B acquisition
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NEW YORK (CNNfn) - International consolidation in the insurance industry, and the fact that the two companies just plain get along, were given as the reasons for Aegon N.V.'s $10.8 billion acquisition of Transamerica Corp. announced Thursday.
     "It's a consolidating, increasingly global business," said Frank Herringer, Transamerica's chairman. "This aligns us with a major international player, and together we're going to have the financial clout and the scale and the expertise to be one of the premier major financial services companies as we enter the 21st century."
     The transaction includes $9.7 billion in stock and cash - about 70 percent stock and 30 percent cash, with provisions for renegotiation or cancellation if the companies' stock prices rise or fall more than 35 percent.
     The deal also calls for Aegon to assume $1.1 billion in Transamerica debt.
     Transamerica stock was trading Thursday at 73-3/8, up 15-3/4 and closer to the $78 a share price that Aegon said it will pay for the San Francisco-based insurer.
     Aegon's U.S. shares were up 5-1/16 to 99-13/16.
     The deal makes the new company the third-largest insurer in the United States, behind Metropolitan Life and Prudential. And it's the second-largest deal in the U.S. insurance industry, lagging the $18 billion transaction in which American International Group (AIG) acquired SunAmerica last year.
     The merged company's assets will total $163 billion.
     But while size matters to the companies, it's not the only consideration.
     "Our combination wasn't imposed by circumstances - Transamerica didn't have to do it and we didn't have to do it," said Donald Shepard, chairman of Aegon USA. "It was very friendly - we've had a good cultural fit since the day we met. Our two management teams very much look forward to working together to build a really strong U.S. player."
     Aegon said the acquisition will result in two new lines of business - Transamerica's life reinsurance operations and its presence in Canada. Shepard said Aegon hopes to turn the reinsurance business into an international operation.
     The companies said the transaction will reduce pretax costs over the next three years by about $150 million. They said they expect the deal to be of immediate benefit to Aegon earnings, boosting them by about 3 percent a year.
     Aegon will merge Transamerica's life insurance and finance business with its own U.S. unit, which already accounts for 51 percent of the company's pretax profits. The Dutch company's chairman, Kees Storm said the deal, which is expected to close this summer, will boost the contribution of its U.S. units to two-thirds of its total profits.
     Aegon has focused on middle-income life insurance in the United States, and Transamerica will give it greater access to the high-income pension business where premium income is growing at 10 percent a year.
     Storm also expects Aegon to continue its push in the underdeveloped Asian market where both companies already have a presence in Taiwan and have applied for licenses to operate in China.
     The companies see the deal as nothing but beneficial for Transamerica's 800,000 policyholders in the U.S.
     "Policyholders will see greater financial strength, because this is a company with much greater financial resources," said Transamerica's Herringer. "They're very secure now, they'll be super secure as part of Aegon." Back to top


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