Storebrand sells its stake in If P&C Insurance
The Board of Directors of Storebrand ASA (Storebrand) has today entered into an agreement with Sampo Oyj (Sampo) to sell all of its shares in If P&C Insurance (If) to Sampo. The transaction values Storebrand's shares at SEK 5.4 billion and the whole of If at SEK 24.0 billion.
"With the sale of the shares in If, Storebrand has taken a major step forward in accordance with its strategy to focus on long-term savings and life insurance. The If stake has been considered a non-core investment for Storebrand since the formation of If in 1999. Sampo is a well known player in the Nordic financial industry. Storebrand believes Sampo will be a good owner of If", comments Idar Kreutzer, Group CEO of Storebrand.
The sale of Storebrand's shares at SEK 5.4 billion (approximately NOK 5,2 billion) is expected to result in a pre-tax capital gain of NOK 1.4 billion for the Storebrand group. The corresponding after tax capital gain is estimated at NOK 1.0 billion. The divestment will significantly strengthen the financial position of Storebrand. The proceeds will be utilised to reduce debt in the holding company, to finance growth within Storebrand's core businesses and to return possible excess capital to Storebrand's shareholders.
Major milestone for Storebrand
Since the formation of If in 1999, Storebrand's stake in If has been the group's main exposure to non-life insurance. The sale of the shares in If therefore represents the successful completion of Storebrand's strategy to realise value from its non-life interest while strengthening its competitive position in the core business of long-term savings and life insurance.
If was established by combining Storebrand's and Skandia's non-life insurance operations, with the objective to create a true and leading Nordic non-life insurance company benefiting from cross-boarder synergies and enhanced capital efficiency. When Sampo and Varma-Sampo joined If in 2001, the foundation for achieving these goals was greatly enhanced. The joint ownership structure was viewed as an interim solution for If. Over the past two years the owners have been committed to realising synergies and to improving the company's operational efficiency and financial position.
The effect of the improvement programme has been clearly demonstrated. Today If has published its 2003 results with a combined ratio of 100.9% for 2003, compared to 106.1% and 113.1% in 2002 and 2001, respectively. In view of this performance, the owners consider If to be a strong company, with a compelling strategy and business plan, and a highly capable management team. Accordingly, it is now appropriate to consider the issue of the best ownership arrangement going forward.
The best way forward
In the second half of 2003, the owners of If began to consider the possible IPO of If as well as other strategic alternatives. Recently, Sampo indicated an interest in exploring the potential basis for an acquisition of Storebrand's and Skandia's shares in If. Storebrand believed that a sale to Sampo provided important advantages relative to an IPO, including near-term certainty on valuation, acceleration of the receipt of proceeds, and the removal of market risks normally associated with an IPO offering. Storebrand believes that the agreement which has been reached with Sampo represents the best option for Storebrand's shareholders.
In the second half of 2003, the owners of If began to consider the possible IPO of If as well as other strategic alternatives. Recently, Sampo indicated an interest in exploring the potential basis for an acquisition of Storebrand's and Skandia's shares in If. Storebrand believed that a sale to Sampo provided important advantages relative to an IPO, including near-term certainty on valuation, acceleration of the receipt of proceeds, and the removal of market risks normally associated with an IPO offering. Storebrand believes that the agreement which has been reached with Sampo represents the best option for Storebrand's shareholders.
ABG Sundal Collier and Deutsche Bank have acted as financial advisers to Storebrand in this transaction.
Completion of transaction
The sale of Storebrand's shares is subject to approvals from regulatory and competitive authorities, and will be completed as soon as these are obtained.
Financial effect for Storebrand.
In the financial accounts for Storebrand group, If has been consolidated based on the equity method. Storebrand's shareholding in If has been treated as an associated company in the balance sheet, and Storebrand's part of If's quarterly operating results has been included in its own profit and loss statement. As of 31 December 2003 the book value of Storebrand's shares in If was NOK 3,912 million, compared to NOK 3,196 million as of 31 December 2002. If's contribution to Storebrand group result in 2003 and 2002 was NOK 324 million and minus NOK 244 million, respectively.
The agreed sales price of SEK 5.4 billion (cash settlement) for Storebrand shareholding equals approximately NOK 5.2 billion based on an SEK/NOK exchange rate of 0.96. Storebrand has executed a currency hedging programme in relation to the transaction. In the group accounts the divesture is expected to result in a pre tax capital gain of NOK 1.4 billion based on book values as of Q4 2003. The after tax capital gain is estimated to constitute approximately NOK 1.0 billion. The transaction is expected to be accounted for in Q2 2004.
The following table describes the estimated capital gain effect based on Q4 2003 book values:
| | NOK bn |
| Agreed sales price | 5.2 |
| Transaction costs, reserving and currency effects | 0.1 |
| Booked value | 3.9 |
| Capital gain (pre-tax) | 1.4 |
| Tax | -0.4 |
| Capital gain (after tax) | 1.0 |
The following table summarises the estimated effect of the transaction on key figures for the Storebrand Group:
| Key figures | Status as of Q3 2003 | Estimated effect of transaction |
| Capital gain after tax | n/a | NOK 1.0 bn |
| Capital gain effect on EPS | n/a | NOK 3.64 |
| Group equity | NOK 9.3 bn | + NOK 0.8 bn |
| Group capital ratio | 14.7% | +4.8 %-points |
The final and exact level of capital gain will be calculated at the time of completion of the transaction.
Use of proceeds
Storebrand plans to use the proceeds of this transaction to repay debt, to provide a foundation for the growth of its core activities over the next two years and to return possible surplus capital to its shareholders.
As of Q3 2003 Storebrand ASA (holding company) held liquid assets of NOK 1.3 billion, a bond loan of NOK 1.5 billion maturing in December 2007 and an exchangeable bond loan of NOK 1.3 billion maturing in March 2006. Storebrand intends to use part of the expected sales proceeds to reduce the debt in the holding company such that the net debt ratio will equal zero over time.
Storebrand sees interesting growth prospects in its core business. Storebrand will ensure that its long-term savings and life insurance business is adequately capitalised relative to the expected future growth. Part of the proceeds will be allocated for this purpose.
Storebrand aims to maintain an efficient capital structure for the benefit of its shareholders. Consistent with this strategy, any excess capital should be returned to the shareholders. Storebrand is currently evaluating different methods, including dividends and a share re-purchase programme, with a view to developing optimal mechanisms for returning capital to shareholders.
Storebrand will today arrange a combined press and analyst conference in Oslo at Felix Conference Center, Bryggetorget 3, at 11.00 CET. Storebrand's chairman Leiv L. Nergaard and CEO Idar Kreutzer will attend the conference.
A conference call in English will be held at 16.00 CET by Group Finance Director Lars Aa. Loddesol. To attend the conference call, please call 800 80119 (from Norway) or +47 23 000 400 (from abroad) from 15.50 CET and ask for 'Storebrand'. The presentation for the conference call will be available on www.storebrand.no/ir.
Storebrand releases its Q4 2003 results on February 18th at 08.30 CET.
Oslo, 11 February 2004
Attachments: If Skadeförsäkring - Year end report 2003
Contact persons: <br> <br> Lars Aa. Loddesol <br> <br> Executive Vice President, Group Finance Director <br> <br> Tel: +47 22 31 56 24, Mobile: +47 93 48 01 51 <br> <br> <br> <br> Egil Thompson <br> <br> Executive Vice President, Corporate Communications <br> <br> Tel: + 47 22 48 95 86, Mobile: + 47 93 48 00 12 <br> <br> <br> <br> Nils Robert Hodnesdal <br> <br> Investor Relations <br> <br> Tel: + 47 22 31 55 33, <br> Mobile: + 47 93 40 38 13 <br> <br>