Dealtalk: Insurers covet Eurasia units ING wants to float

LONDON Tue Aug 2, 2011 8:46am EDT

People walk in the ING office in Taipei October 20, 2008. REUTERS/Pichi Chuang

People walk in the ING office in Taipei October 20, 2008.

Credit: Reuters/Pichi Chuang

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LONDON (Reuters) - ING (ING.AS) could get a far bigger pay-out if it ditched a plan to spin-off its Asian and European insurance units as a single stock market-listed business and instead chose buyers from a long list of interested parties.

A trade sale would enable the Dutch bank to unlock the high value in its Eastern European and the Asian operations, and avoid tainting them with the business in the Netherlands, where insurance portfolios trade below book value.

"A lot of people are interested in it. A lot of external parties have talked to them to register interest. They know there is interest, it's a matter of price," said one investment banker who asked not to be identified.

Two other investment bankers said that a long queue of insurers had held discussions with ING from about the beginning of the year. The talks were entirely informal.

The European Union has ordered ING to split its bank and insurance operations, and to sell a swathe of assets as payback for a 10 billion euro ($14.2 billion) capital injection from the Dutch state during the credit crisis.

Chief Executive Jan Hommen -- a 68-year old who was formerly finance chief at aluminum producer Alcoa (AA.N) and then at Philips Electronics (PHG.AS) -- has been in charge of the effort ever since taking ING's helm in 2009.

He proved to be a savvy dealmaker when he sold ING's Latin American operation to Colombia's relatively unknown GrupoSura SIS.CN for 2.6 billion euros ($3.7 billion) last month. ING had first said it would float the business.

He is now readying ING's Eurasian and its U.S. business for two Initial Public Offerings (IPO) to take place in the course of 2012. But this is ING's "base case" scenario, a wording suggesting it does not rule out a trade sale.

Properly valuing the European and Asian operations is hard, because ING has yet to allocate debt to the units. It is a job that bankers expect ING to take on in the second half of the year.

ING will publish mid-year results on Aug 4.

Hommen can count on the support of Ivo Lurvink, a former Credit Suisse (CSGN.VX) banker, who also headed mergers and acquisitions at Philips. Lurvink has been in charge of ING's divestment program since 2009.

Germany's Allianz (ALVG.DE) was one of the many European insurers that had looked into the business at this early stage, according to a person familiar with the situation. But Europe's largest insurer had now lost interest.

Other European insurers, such as Zurich Financial (ZURN.VX), Generali (GASI.MI), AXA (AXAF.PA), Munich Re (MUVGn.DE) and Germany's Talanx HDIVGT.UL all declined to comment.

PROBLEM CHILD

The Eurasian business has a value on ING's books of 15 billion euros, though that number will get lower once the group allocates debt to the units. At 8.5 billion euros, the Benelux arm is the biggest part.

It is also the least attractive, with virtually no growth, and posing an immense burden on capital for any unlikely prospective buyer. Dutch insurance businesses trade at some 0.5 to 0.6 times book value, analysts and bankers said.

By contrast there is huge interest in Eastern European and Asian insurance, which may trade up to 2 times book value. The sale of Polish peer insurer Warta by Belgium's KBC (KBC.BR) for instance, is closely watched.

And Prudential's (PRU.L) bold bid last year to grab the life insurance business of AIG (AIG.N) for $35.5 billion -- which nearly wrecked CEO Tidjane Thiam's career -- was a sign of the temptations of the Asian life insurance market.

Lumping the three regions together in an IPO would value the business at a level that will be heavily dragged down by the Benelux operations. Rabobank analyst Cor Kluis puts the number at 1.1 times book value.

That would value ING's Eurasian business at 10.1 billion euros, according to Rabobank.

On the other hand, sorting the business in three different regions will allow ING to attract a takeover premium -- which can be as high as 30 percent. In that case, the blended multiple could amount to 1.5 times book value.

The risk ING has to weigh is that it gets stuck with just the less attractive Benelux business. And any sale needs to be timed well, to avoid being upstaged by others.

"ING is not the only bank trying to unload insurance assets. The fear is that too many assets will come onto the market at the same time in 2012/2013," a senior manager at a major European insurance group said, asking not to be named. ($1 = 0.704 Euros)

(Additional reporting by Jonathan Gould in Frankfurt, Julien Ponthus in Paris and Gilbert Kreijger in Amsterdam; Editing by Andrew Callus)

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