MetLife Acquires Citigroup Businesses

Seeking to substantially expand its distribution capacity, MetLife will purchase Citigroup's Traveler's Life and Annuity business and virtually all of the financial services firm's international insurance business.

MetLife (New York, N.Y.; third quarter 2004 net income of $695 million) and Citigroup (New York, N.Y.; net income for the fourth quarter of 2004 of $5.32 billion,) announced Monday an agreement for the purchase of Citigroup's Travelers Life and Annuity Co. and Citi International Holdings for $11.5 billion, subject to closing adjustments, as well as a ten-year distribution agreement.

"When you look at the proprietary distribution system we are purchasing, it is a great opportunity for the MetLife brand to be distributed through the Citigroup enterprise," said MetLife Chairman and Chief Executive Officer Robert H. Benmosche at a MetLife presentation held on Monday. MetLife will make its products available through Citigroup distribution channels including Smith Barney, Citibank branches, and Primerica, in the U.S. "There is almost no overlap in sales channels," commented C. Robert Henrikson, president and chief operating officer of MetLife at the same presentation. "We are better able to move from a platform of s career agency system to an independent agency system," Henrikson continued.

The distribution agreement will be broken into two five-year segments, with the new company stepping into Citigroup's existing exclusive distribution arrangements for the first five years, followed by a more open architecture environment for the second portion, according to Citigroup.

According to Benmosche, MetLife has been spending $1 billion per year for the past five years on running and building new technology infrastructure. This will significantly aid smooth transition and support of the new distribution channel since Citigroup, according to Henrikson, "hasn't been spending the type of money on infrastructure support in its insurance organization that we have, so savings are embedded in integration expenses well as in the intellectual power of the two groups." Henrikson estimates cost savings of $150 million in pretax savings which, " does not seem like a whole lot for a deal this size."

"It is common for acquiring companies to overestimate cost savings, so while the $150 million figure is not impressive given the size of the deal, it is much more realistic to say the distribution fit makes sense therefore the deal makes sense," explains Craig Webber, senior analyst, Celent (New York, N.Y.). "Travelers offers a real understanding of independent agents and has had a reputation as a leader in independent technology for agents and agency management systems," Webber continues.

The combined resources are an asset that Benmosche predicted will "be of real value to our shareholders." "Today we believe we can provide high quality technology for high quality service for all people who do business with us," Benmosche continued.