MetLife Mulls $2B Deal with BBVA - Analyst Blog
December 26 2012 - 10:30AM
Zacks
Last week, Bloomberg reported that MetLife Inc.
(MET) intends to purchase the pension-management wing of
Banco Bilbao Vizcaya Argentaria
SA (BBVA) – AFP Provida SA –based in Chile. The
transaction value is expected to be over $2.0 billion.
Spain-based BBVA is looking forward to streamlining its
operations by divesting the redundant ones. Additionally, armed
with $45.5 billion of assets under management (AUM), Provida is the
largest pension provider in Chile holding about 28% of the market
share, based on AUM. Hence, this business appears to be a strategic
fit and complements MetLife’s existing operations and growth
goals.
On the other hand,as indicated earlier, MetLife continues to
focus on long-term growth through higher penetration in the rapidly
growing international emerging markets, which includes Latin
American regions as well. In May this year, MetLife had charted out
its long-term ROE growth goals of 12–14% to be achieved by 2016,
driven by higher operating earnings from emerging economies.
Subsequently, MetLife aims to augment the contribution of its
earnings from emerging economies to 20% by 2016 from 10.3% in 2011
and about 14% in 2012. Hence, the company’s expansion motives
reflect its emphasis on strengthening its financials by 2016,
thereby countering the competitive pressure and the low interest
rate environment.
In the long run, MetLife expects to build a global brand by
adopting a more customer-centric business model. The company also
anticipates constructing a Global Employee Benefits business,
increasing its emerging markets presence as well as refocusing on
its US business.
A Decade of Expansion Through Acqusitions
Over the past several years, MetLife has been growing through
strategic acquisitions. In 2001, MetLife had acquired BBVA’s
insurance operations in Chile for about $200 million. The company
also bought Aseguradora Hidalgo SA, the leading Mexican insurer,
for about $962 million in 2002. This was followed by the purchase
of Travelers Life & Annuity from Citigroup
Inc. (C) in 2005 for $11.7 billion, which helped MetLife
penetrate deep into the markets of Japan, Australia and UK.
Most significantly, MetLife added American International
Group Inc.’s (AIG) American Life Insurance Co. (ALICO) in
November 2010 for about $16.0 billion, in an attempt to expand
across over 50 countries outside the US. This also enhanced the
company’s international revenue share from 14% of the total in 2010
to 28% in 2011. The international segment even posted earnings of
$2.21 billion in 2011 compared with $780 million in 2010, followed
by consistent growth so far in 2012, primarily backed by ALICO.
Moreover, in August 2012, MetLife also acquired the life and
pension businesses of Aviva in Eastern Europe and integrated it
into ALICO.
Overall, we believe that the strategy to gain market share
through global diversification and acquisition seems to be apt for
MetLife. Despite being adequately liquid, the company is unable to
return wealth to shareholders in its full capacity due to its
comprehensive capital plan, which has been rejected twice by the
Federal Reserve based on the size and scale of its bank operations.
This leaves the company with ample funds for its long-term
growth.
MetLife retains a Zacks #3 Rank, which translates into a
short-term Hold rating and a long-term Neutral recommendation.
AMER INTL GRP (AIG): Free Stock Analysis Report
BANCO BILBAO VZ (BBVA): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
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