Spain's Santander (NYSE: STD) is selling a majority stake in its Latin American insurance business to Switzerland's Zurich Financial Services as the two companies form an alliance they say will take advantage of their strengths in the region.
According to presentations to investors from both companies, Zurich will pay US$1.67bn in cash up front for a 51% stake in Santander's combined insurance operations in Brazil, Chile, Mexico, Uruguay and Argentina.
The full cost of the deal for Zurich will rise to US$3.28bn under an earn-out mechanism dependent on profit performance targets over the 25 years of the alliance.
The deal sets up a Spanish holding company called Zurich Santander Insurance America for Santander's Latin American insurance businesses. Zurich will have management control of the company, while Santander's banks and brokers in the region will benefit from a 25-year distribution license.
The deal makes Zurich the fourth-largest insurer in the five markets combined, increasing its market share to 5.1% from 1.9%. In 2010, Santander had US$4.24 in revenue from life insurance and US$574mn from non-life policies; Zurich had US$670mn in life premium income and US$1.38bn in non-life.
BANCASSURANCE IS FOCUS
Publicity material from both companies said the deal was primarily a distribution agreement, leveraging Zurich's bancassurance experience with Santander's Latin American network of 36mn customers and more than 5,600 bank branches.
During a conference call on the deal, Zurich executives said it did not imply that the company would be merging its existing insurance businesses in Latin America with Santander's.
However, Zurich global life Americas CEO Kevin Hogan acknowledged that "over time, we will be able to leverage backroom synergies across the businesses."
Santander has been in a flurry of acquisition activity over the last year, making purchases in Poland, the UK and Mexico, while selling off a 1.9% stake in Santander Chile (NYSE: SAN).