* Deal expands Generali's business in fast-growing eastern
* First major transaction by new CEO Mario Greco
* Buyout partly financed by recently-issued 30-year bond
* Generali to install own management
* Czech group may use funds to pay off debt
(Adds comments on asset sales, solvency ratio, shares,
By Lisa Jucca and Gianluca Semeraro
MILAN, Jan 8 Italy's largest insurer Generali
said on Tuesday it will buy out the rest of an eastern
European joint venture it holds with Czech group PPF for 2.5
billion euros ($3.3 billion), increasing its exposure to the
It is the first major deal struck by Generali's new chief
executive, Mario Greco, who was appointed in August to improve
profitability at Europe's third-largest insurer behind Allianz
and Axa, and review its portfolio of assets.
Generali said eastern Europe was now its fourth biggest
market and growing faster than western Europe, with gross
premiums totalling 4 billion euros at the end of 2011, from 1
billion euros in 2007.
Generali has a long-standing and sizeable business in
eastern Europe, where economic growth is faster and insurance
levels are lower than in mature western European markets.
German-based Allianz and France's Axa also have a strong
presence in the region. Axa has said it aims to increase profits
coming from the region.
Analysts have long said Generali needed to decide on the
future of its relationship with PPF, which had an option to sell
its 49 percent stake in Generali PPF Holding (GPH) to Generali
or a third party. Generali's shares rose 1.25 percent to 14.5
euros after the buyout was announced.
"The deal provides clarity and greater certainty over our
strategy in central and eastern Europe," Greco told analysts in
a conference call.
The purchase of the stake Generali does not yet own in GPH
will be carried out in two stages, with Generali buying a 25
percent stake by 28 March 2013 and the rest at the end of 2014.
Generali will use the cash it has raised through a recently
issued 30-year bond to finance the first tranche of the deal,
whose negative impact on the group's solvency ratio - a key
measure of financial strength - will be offset by the debt
Generali forecast a pro-forma solvency ratio of 150-155
percent for the end of 2012, up from 140 percent in September,
and Greco said the group would need no external resources to
fund the second tranche of the deal.
"It's a totally manageable amount of money," said Greco, who
will present the result of his strategic review to investors in
London on Jan. 14.
Generali is expected to beef up its financial war chest
through the sale of Swiss-based private bank BSI, which some
analysts have said could fetch as much as 2 billion euros, and
its U.S. reinsurance business.
Chief Financial Officer Alberto Minali told analysts the
group was about to receive non-binding offers for both units,
and the disposal process was going according to plan.
Analysts said the deal with PPF removed uncertainty and
provided a better view on Generali's ability to finance the
"It should put an end to the rumours related to a capital
increase aiming at funding the purchase of the minority stake in
one go," Mediobanca said in a note.
However, it added the disposals of BSI and the U.S.
reinsurance unit would not be easy and that the recent bond
issuance made Generali the highest leveraged company among large
European insurers and reinsurers.
Generali said it would discuss the buyout deal with rating
agencies and did not expect it to worsen its credit profile.
Under the terms of the deal, PPF will acquire the insurance
operation of GPH in Russia, Ukraine, Belarus and Kazakhstan for
80 million euros.
The agreement also includes a no-cash equity swap that will
allow Generali to raise its stake in Russian insurer Ingosstrakh
to 38.5 percent by acquiring a stake held by PPF.
PPF will in turn take ownership of Generali's interest in two
private equity businesses.
Generali will install its own management at GPH upon payment
of the first tranche and PPF said the deal included a
352-million-euro dividend payment in the first quarter of 2013.
PPF, which had borrowed 2.1 billion euros from a pool of
banks using its stake in GPH as collateral, could use the
proceeds of the sale to Generali to repay debt and free up funds
for further investments.
(Additional reporting by Silvia Aloisi, and by Jason Hovet in
Prague; editing by Mike Nesbit and Louise Heavens)