RPT-IPO VIEW-Primerica IPO, despite problems, could sell

Sun Mar 28, 2010 7:00am EDT

(Repeats with no change to headline on story)

* Citi to sell Primerica stake

* To raise about $234 mln in IPO

* Valuation is relatively low

* Demand for Primerica's products could be strong

By Clare Baldwin

NEW YORK, March 26 (Reuters) - Citigroup Inc (C.N) is set to sell off a stake worth about $234 million in Primerica Inc, which sells life insurance and financial advice, and while the deal is far from perfect, some analysts think the offering could sell well.

Few other financial services companies cater to Primerica's niche-- lower-middle-class and middle-class families. And the offering's valuation is relatively low compared to other life insurance companies.

Private equity firm Warburg Pincus will buy up to a third of the company, which is a vote of confidence in the business, analysts said.

"Warburg Pincus has put this thing together and they expect to make money. If people buy at the IPO price they'll be buying right along with Warburg's price," said IPOdesktop.com President Francis Gaskins said on Friday.

Primerica's target audience is households with an annual income of $30,000 to $100,000. As the economy recovers, these households could feel more comfortable investing and buying life insurance products, analysts said.

There are definitely risks in buying Primerica shares. Primerica will not keep any of the proceeds from the offering, so the funds will not bolster the insurer.

Citi, which is leading the underwriters, is taking the IPO proceeds, and has taken substantial funds out of the business through dividends in recent years-- nearly $1 billion since 2007. The bank will take another $622 million in dividends before the completion of the IPO, according to its prospectus. Those are funds that Primerica will not be able to invest in its growth.

"When there is a spinoff generally the parent extracts its pound of flesh, which is certainly the case here," said Linda Killian, a portfolio manager with Connecticut-based Renaissance Capital.

But Primerica can still grow at a healthy clip, Killian said.

"The company is a very sales-oriented company that focuses on the really middle income America that doesn't get a whole lot of financial services help from some of the larger companies that tend to focus on higher net worth individuals," Killian said.

Most of the risk -- and profit -- from life insurance policies that Primerica has sold in recent years will be ceded to Citigroup, but Killian estimates that Primerica could replenish its book in as short a period as four to five years.

Primerica posted net income of about $495 million and revenue of $2.2 billion in 2009.

100,000 STRONG

Primerica's strength is its sales force of more than 100,000 representatives. It focuses on households making $30,000 to $100,000 a year.

This group is underinsured and needs to boost its investments, especially coming out of the financial crisis, said Clark Troy, a senior analyst at Aite Group.

The shock from the crisis has revealed to consumers that they might not be as well-prepared for retirement and other major milestones as they ought to be, Troy said. Middle class consumers may find Primerica's pitch persuasive, he added.

"Its a financial product that can be priced attractively and give (the consumer) a lot of comfort," Troy said.

After the IPO Citi will own 32 to 46 percent of the stock and private equity investor Warburg Pincus LLC [WP.UL] will own 23 to 33 percent of the stock.

In a separate, private deal Warburg Pincus has agreed to buy about 17.2 million shares, and warrants to buy another 4.3 million shares at 120 percent of the IPO price, assuming Citigroup meets certain conditions. Warburg also has the right to buy up to another $100 million worth of shares at the IPO price.

Citi, which accepted $45 billion worth of U.S. government bailout funds, has not made a secret about wanting to divest itself entirely of Primerica. But that is because Primerica is not part of its main banking business, and does not mean the unit is a bad business

If Primerica (PRI.N) prices at the midpoint of the expected range it will have a price to book value of 0.7. By comparison Ameriprise Financial Inc (AMP.N) and Prudential Financial Inc (PRU.N) are over 1, said IPOdesktop.com's Gaskins.

Primerica's IPO hopes to sell 18 million shares for $12 to $14 each. Citi declined to comment. Primerica was not immediately available for comment.

A total of five companies are on the schedule for initial offerings next week. Other IPO candidates include crude and petroleum transporter Scorpio Tankers Inc (STNG.N), financial services software maker SS&C Technologies Inc (SSNC.O), wireless equipment maker Meru Networks Inc MERU.N, and Tengion Inc TNGN.O, which is working on growing replacement organs and other tissues. (Reporting by Clare Baldwin, additional reporting by Paritosh Bansal; editing by Carol Bishopric)

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