Taking its restructuring initiatives a step ahead, on Wednesday, Citigroup Inc. (C) announced the initial public offering (IPO) and spin-off of a part of Primerica Inc., its insurance unit. The company raised $320.4 million from the IPO by selling 21.4 million shares at a price of $15 each. This came in above prior expectations of $236 million.
Previously Citi was planning to sell 18 million of Primerica shares in the range of $12-$14 per share, which was suppose to raise about $236 million.
Additionally, in Feb 2010, Citi had drawn an agreement to vend off 17 million of Primerica’s shares and 4.3 million of its warrants to a private equity fund managed by Warburg Pincus LLC. This would generate about $200 million to Citi, reducing its stake in Primerica to 43%.
Further, if the underwriters exercise their over-allotment option to buy another 3.2 million Primerica at $15 each, which would rake in another $48 million, Citi will own only 39% of the insurer once the IPO closes. The company expects to sell the remaining shares of common stock once Primerica achieves its public identity, subject to market conditions.
However, all the proceeds of the IPO and spin-off will directly go to Citi who is actively reducing its non-core assets. The company was the hardest hit and yet to fully recover from the huge debts and credit losses as consumer loans and credit markets collapsed during the peak of the global economic crisis. Hence, Citi is working vigorously to reduce its problem loans and toxic assets by approximately $5 billion during the second quarter of 2010.
Citi aims to de-leverage Citi Holdings through a number of steps that include joint ventures, dispositions and assets runoffs. As a matter of fact, the company has already announced the sale of a number of its businesses within Citi Holdings. However, at this point of time, the value of Citi Holdings, which is a repository of problem assets and mortgage exposures, remains entirely uncertain.
On the other hand, Primerica is expected to benefit from regaining its identity once again, thereby relieving it from the operating restrictions at Citi and those imposed by the government on Citi and its subsidiaries.
Citigroup Global Markets Inc. was sole book-runner for the transaction. Primerica’s shares commenced trading from Thursday (Apr 1, 2010) under the ticker PRI.
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