Recently Aegon N.V. (AEG) announced a strategic alliance with Spain’s largest financial group Banco Santander, for a period of 25 years. This long-term agreement is another attempt to strengthen its market position in Spain.
Further, as part of the alliance the parties are forming a joint venture (:JV) company with life and non-life insurance businesses wherein Aegon will acquire 51% stake in a life and a non-life insurance company for EUR 220 million. Aegon has also decided to reimburse an additional amount, depending on the performance of the partnership over five years.
Moreover, Aegon’s Spain business will serve the back-office functions for the JV operations. Meanwhile, the JV will enable Aegon to distribute its protection and general insurance products through Banco Santander’s widespread network of 4600 branches, also tapping the latter’s clientele base of 12 million.
Subject to regulatory approvals, this transaction is expected to culminate in the first half of 2013. Moreover, Aegon held operational free cash flow of EUR 448 million at the end of the third quarter of 2012 primarily driven by model refinements and hence sufficient to finance the transaction.
Aegon has been operating in Spain for last 30 years through several bancassurance JVs in the region. The latest JV with the leading bancassurer not only boosts its product portfolio but also enhances the company’s competitive position in the European markets. Such efforts are also likely to be accretive to the company’s financials in the long run.
In order to expand its operations, the company engages in a number of select merger and acquisition accomplishments. The latest on the list was the announcement to acquire a 100% stake in Fidem Life from Horizon Capital, a private equity firm in Ukraine in December. The transaction is expected to close in the first quarter of 2013.
Aegon currently holds a Zacks #2 Rank, which translates into short term Buy rating. Its peers are Cigna Corp. (CI) and Prudential Financial (PRU). Cigna shares the same Zacks Rank as Aegon and Prudential holds a Zacks #3 Rank, translating into a short term Hold rating.
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