The insurance giant MetLife Inc. announced Monday that it was acquiring Travelers Life & Annuity Co. from Citigroup Inc. for at least $11.5 billion.
The two companies, both based in New York, said in a statement that the deal will make MetLife “the largest individual life insurer in North America, based on sales.”
The deal already has been approved by both boards and is expected to close in the summer, the statement said.
It said the price was “subject to closing adjustments.”
MetLife shares rose 34 cents, or 0.85 percent, to $40.28 in midmorning trading on the New York Stock Exchange. Citigroup shares advanced 67 cents, or 1.4 percent, to $49.05 on the Big Board.
Citigroup, the nation’s largest financial institution, had retained Travelers Life & Annuity in 2002 when it spun off Travelers Property Casualty Corp. in a $5 billion initial public offering. Travelers Property merged with St. Paul Cos. Inc. in 2003 to create The St. Paul Travelers Cos., based in St. Paul, Minn.
The announcement Monday said that Citigroup and MetLife “have entered into 10-year agreements under which MetLife will greatly expand its distribution by making products available through certain Citigroup distribution channels,” including Citi branches and its Smith Barney brokerage unit.
It said that Citigroup will receive $1 billion to $3 billion in MetLife equity securities and the balance in cash, which will result in an after-tax gain of about $2 billion. It added that MetLife may finance the cash portion of the transaction through a combination of cash on hand, debt, mandatory convertible securities and selected asset sales.
In a phone call with analysts, MetLife’s chief financial officer, William J. Wheeler, said that the asset sales could include divestiture of MetLife’s reinsurance operations. Reinsurance is backup coverage purchased by insurance companies.
MetLife owns about 52 percent of the Reinsurance Group of America.
Wheeler said asset sales could also include “equity real estate investments and potential other things.”
C. Robert Henrikson, MetLife’s president and chief operating officer, said the purchase would bring “even more balance” to MetLife’s business mix.
MetLife currently earns about 46 percent of its profits from institutional sales and 30 percent from individual sales, he said. After the merger, profits from institutional sales should drop to about 43 percent, while earnings from individual sales should rise to 36 percent. Other categories are international, 7 percent; auto and home 6 percent; and miscellaneous, 8 percent.
Citigroup said that the businesses being acquired by MetLife generated total revenues of $5.2 billion and profits of $901 million in 2004. The business had total assets of $96 billion at year’s end, it said.
The Wall Street Journal, in Monday editions, disclosed that the merger talks were under way.
The move was the latest by Citigroup to sell off noncore businesses. In November, Citigroup sold a truck-leasing operation to General Electric Co. for $4.4 billion. It also sold its European vendor-finance leasing operation for CIT Group Inc.
Although no longer consider strategic, Travelers had played a big part in the creation of Citigroup.
Citigroup Chairman Sanford I. Weill acquired the Travelers insurance group in 1993 and Travelers then acquired Shearson in 1993 and Salomon brokerage in 1997; it merged with Citicorp in 1998 to form Citigroup.
Shortly after the announcement was made, Fitch Ratings affirmed MetLife debt ratings but downgraded Travelers Life “insurer financial strength” rating to AA from AA-Plus.
In Monday’s statement, Robert H. Benmosche, MetLife’s chairman and chief executive officer, said the deal “increases MetLife’s size and scale in our core products and markets.”
He added: “Combining Travelers Life & Annuity’s strengths with MetLife’s will enable us to take full advantage of market opportunities and favorable demographic trends.”
Citigroup chief executive Charles Prince said that selling Travelers “sharpens our focus on Citigroup’s long-term growth franchises.”
He did not say how Citigroup would use the proceeds from the sale, but promised to deploy them “to higher return and higher growth opportunities.”
The transaction encompasses Travelers Life & Annuity’s business in the United States and its international operations other than Citigroup’s life business in Mexico.