Archive for March, 2010

Pandit Getting Ready to IPO Sandy Weill’s Primerica

Tuesday, March 30th, 2010

Years after Sandy Weill built Citigroup, Vikram Pandit has been working day and night to divest all ancillary businesses in order to raise capital and pay back the U.S. government for one of the largest bailouts in history.  To date, Citigroup has already sold its Japanese brokerage, its commodities trading unit, and credit card assets.  The most recent divestiture/IPO  for Citi is its  insurance division, Primerica, the insurance company that Sandy Weill used to build Citigroup into the powerhouse it was in 2005/2006.  The IPO reflects improvements in the market.  There are 4 IPOs planned for this week. Primerica will be selling for a sharp discount of 7x PE compared to other insurers, which trade at about 9x P/E.  Warburg Pincus will be purchasing about 30% of the IPO with warrants to purchase more shares in the future.  The division has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income.  It earned $495 million in 2009, almost 3x as much in 2008.  Primerica will trade under the symbol “PRI.”

According to Michael Tsang & Craig Crudell of Bloomberg, “Primerica Inc., the insurance business that Sanford I. “Sandy” Weill used to build Citigroup Inc., is selling shares in an initial public offering at a discount to its competitors.

Primerica plans to raise $252 million tomorrow, a filing with the Securities and Exchange Commission and Bloomberg data showed. At the middle of its price range, the Duluth, Georgia- based distributor of consumer-finance products from term-life insurance to mutual funds would be valued at 6.74 times earnings after accounting for its planned reorganization. That’s 29 percent less than the median for U.S. life and health-insurance providers, data compiled by Bloomberg show.

Citigroup Chief Executive Officer Vikram Pandit is dismantling the company Weill built spending about $50 billion on Travelers Corp., Salomon Inc. and Citicorp during the 1990s to offer everything from insurance to stock broking and branch banking. The sale comes after the Standard & Poor’s 500 Index’s rally to an 18-month high spurred a rebound in the IPO market.

“The Primerica deal reflects a shift from the financial supermarket model, where instead of being good at a lot of things, a company like Citigroup ended up being mediocre at everything,” said James Dailey, who oversees $140 million as chief investment officer at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Primerica could fetch a reasonable price. It’s been around a long time, its brand is established.”

Primerica is one of four U.S. companies scheduled to sell shares through initial offerings this week.

IPO Rebound

All five IPOs since March 15 have priced within or above their forecast range as the S&P 500 extended a rebound from its 2010 low on Feb. 8 to 11 percent. The previous 14 deals since the start of the year had been cut by 24 percent on average, data compiled by Bloomberg show.

Carlyle Group’s Windsor, Connecticut-based SS&C Technologies Holdings Inc., which sells trading and investment management software to the financial industry, and Meru Networks Inc. of Sunnyvale, California, which makes Wi-Fi networking equipment, are scheduled to price their IPOs today. Carlyle, the Washington-based buyout firm that oversees $89 billion, won’t sell SS&C shares in the $161 million offering.

Tengion Inc., the East Norriton, Pennsylvania-based company trying to grow replacement organs and tissues, is also set to hold its IPO this week, according to Bloomberg data.

Primerica, which has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income, earned $495 million in 2009, an almost threefold increase from a year earlier.

Relative Value

Net income rebounded after declining 72 percent in 2008, when Primerica wrote down some of its goodwill, or the amount paid above the net asset value in an acquisition.

As part of its reorganization, Primerica will transfer 80 percent to 90 percent of the “risk and rewards” from the life insurance policies that it sold and distribute $622 million in assets to Citigroup before the IPO, according to the filing. That includes a $454 million one-time dividend to Citigroup.

At the middle of its $12 to $14 price range, the company is valued at 6.74 times its 2009 per-share income of $1.93, after taking into account a decrease in revenue and profit that would have taken place if the reorganization occurred on Jan. 1, 2009, according to its filing and data compiled by Bloomberg.

That’s less than the median 9.52 times price-earnings ratio for 23 publicly-traded U.S. life and health-insurance providers, Bloomberg data show.

Prudential, Ameriprise

Prudential Financial Inc. of Newark, New Jersey, the second-largest life insurer, and Ameriprise Financial Inc., the Minneapolis-based financial planning and services firm, command higher valuations, data compiled by Bloomberg show. Primerica lists the two companies among its biggest competitors.

Buyers of Primerica’s IPO will own 24 percent of the insurance firm after the offering.

They will also be investing alongside New York-based Warburg Pincus LLC, which oversees $30 billion. The private- equity firm agreed to buy 17.2 million shares, or a 23 percent stake, in a private sale at the IPO midpoint price, and warrants to purchase 4.3 million shares at a 20 percent premium. Warburg’s stake may increase to 33 percent if the firm exercises its right to buy additional shares from Citigroup.

“It’s a ‘fire sale’ by Citi,” Francis Gaskins, president of in Marina del Rey, California, said in an e- mail. Also, “the IPO investor can get in on the same terms as Warburg. There appears little, if any, risk in this IPO at $13.”

Credit Markets

All proceeds will go to New York-based Citigroup, which is serving as the lead underwriter for the sale. Primerica is part of Citi Holdings, the collection of businesses that Citigroup’s Pandit said he would sell, wind down or restructure.

Pandit is dismantling Weill’s empire after loans and investments tied to the U.S. subprime mortgage market led to $47.6 billion in losses since the last quarter of 2007. Citigroup took a taxpayer-funded bailout after the credit markets froze, Lehman Brothers Holdings Inc. collapsed and Bear Stearns Cos. and Merrill Lynch & Co. were forced to sell themselves. All three companies were based in New York.

Weill used Primerica to build Citigroup through a series of acquisitions. In 1992, Primerica bought a 27 percent stake in Travelers, then took over the company a year later for $3.3 billion, keeping Travelers’ name and umbrella logo.

The company acquired Salomon in 1997 and in 1998 merged with Citicorp in a $37.4 billion deal to create Citigroup.

“This provides an important message that Citi is prepared to shed assets which clearly do not fit the current strategy, even if they have well-known brands,” said Richard Staite, a London-based analyst who covers financial institutions at Atlantic Equities LLP. “It’s a high-profile sale.””

According to Reuters, “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 President Francis Gaskins said on Friday.

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.

The group the firm serves 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’s Gaskins.”

Lehman Brothers Whistle Blower Letter

Tuesday, March 30th, 2010

The letter below is a shocking account of Matthew Lee’s findings at Lehman Brothers in May of 2008.  Enjoy the read.

Letter by Lehman Whistle Blower Matthew Lee, Dated May 16, 2008

Vietnamese GDP Grows 5.8%, Sharp Turnaround!

Tuesday, March 30th, 2010

Economic growth in Vietnam has doubled quarter over quarter, according to the country’s officials.  The country, known to be an outsourcing hub for Chinese manufacturing firms in the Guangdong province has been growing at a rapid pace.  These numbers are especially strong given that most businesses in Vietnam close during the 10 days of Tet, the Vietnamese Lunar New Year celebration.  Analysts say that domestic demand is supporting the economy, while a weakening Dong may help boost exports.  The country has weakened its currency twice since last year.  Industry and construction accounted for 43% of economic activity this quarter.

According to Mr. Folkmanis of Bloomberg, “Vietnam’s economic growth quickened to 5.83 percent in the first quarter from a year ago, buoyed by construction activity, tourism and banking services amid robust domestic demand.

Growth was almost twice as fast as 3.14 percent expansion in the same period last year, according to figures released by the General Statistics Office in Hanoi today. Gross domestic product expanded 5.3 percent last year, after accelerating to 6.9 percent in the fourth quarter.

“Bearing in mind that most businesses in Vietnam close in the first quarter for at least 10 days during Tet, these figures are a good base for strong full-year growth,” said Kevin Snowball, chief executive of PXP Vietnam Asset Management in Ho Chi Minh City, referring to the Lunar New Year holidays in mid- February.

Domestic demand is supporting the economy as the government tries to stimulate exports after the global slowdown reduced demand for Vietnamese-made products. A weakening dong may help boost overseas sales, strengthening growth through the rest of the year, according to Standard Chartered Plc.

Industry and construction accounted for 43 percent of the economy in the first quarter, expanding 5.65 percent from a year earlier. In the same period last year, the gain was 1.7 percent.

Services Growth

Services expanded 6.64 percent from a year earlier after increasing 4.95 percent in the first quarter of 2009. They made up 42 percent of GDP. Hotels and restaurant business advanced 7.82 percent, as the number of foreign visitors to Vietnam jumped 36 percent in the first quarter from a year earlier. Financial services grew 7.86 percent.

“Much of the growth was generated domestically, since exports were still contracting in the first quarter,” Tai Hui, Singapore-based head of Southeast Asian economic research at Standard Chartered, wrote in a research note. “The government’s 6.5 percent growth target is within reach, as exports are likely to improve gradually in 2010, becoming a more potent engine.”

The Southeast Asian economy’s full-year growth could reach 7 percent to 7.5 percent if the global economy continues to improve, PXP’s Snowball said.

Vietnam has devalued its currency twice since November. The dong traded at 19,090 as of 10:30 a.m. in Hanoi, 6.2 percent lower than before the first depreciation on Nov. 25. The benchmark VN Index fell 0.9 percent to 501.20, and the yield on the five-year note was little changed at 12.2 percent, according to Bank for Investment & Development of Vietnam.

Regional Recovery

The GDP figures come amid signs of a regional recovery. In the past week, Malaysia raised its growth forecast, Japan reported the biggest export jump in 30 years, and Taiwan said industrial production rose for a sixth month.

“We’re seeing a two-track recovery with Asia forging ahead of the rest of the world, and Vietnam has consistently been one of Asia’s fastest-growing economies,” said Matt Robinson, a Sydney-based economist for Moody’s Analytics Inc.

“Vietnam’s growth model has been focused on low costs and abundant labor, and the evidence suggests that that model has been more resilient over the past 18 months, when many people put higher-end consumer discretionary expenditure on hold,” Robinson said before the figures were released. Moody’s Analytics, a unit of New York-based Moody’s Corp., focuses on economic research and analysis.

Economic growth has been driven by foreign investment, a literate labor force and low-cost exports, according to research published by Daiwa Capital Markets last week, which cited construction as among the drivers of growth in recent years.

Construction Demand

An increase in credit growth to as much as 38 percent last year has had a “lagged effect” on the Vietnamese economy, according to Australia & New Zealand Banking Group Ltd.

Construction grew 7.13 percent, according to the figures released today.

“We’re starting to see some increased demand in the construction industry,” said Alan Young, Haiphong-based chief operating officer of Australian-listed steelmaker Vietnam Industrial Investments Ltd.”

U.S. Government to Earn $7B+ on Citigroup

Monday, March 29th, 2010

Months after the financial crisis and shadow banking fiasco that led the United States into a severe credit crunch and near depression, the U.S. government is making profits on selling warrants and shares of financial firms that received TARP funds.  The U.S. government could earn more than $7 billion in its $32 billion stake in Citigroup soon.  Morgan Stanley will be managing the sale of the government’s stake.  The investment bank is advising the U.S. to avoid a block sale at a discount to current prices to avoid forcing the price of Citi shares to fall quickly.

According to Mr. Smith and Ms. Solomon of the WSJ, “The U.S. government could earn a profit of more than $7 billion on its investment in Citigroup Inc. under its plan to sell off its $32 billion stake over about six months, people familiar with the matter said.

The government said it hired Morgan Stanley to manage the sale of its 27% holding in the bank, which is one of its last remaining stakes in a Wall Street banking giant. The government would sell 8% to 10% of the shares traded daily, according to people familiar with the plan.

At the current market price, the planned sale to investors would give the government a profit of about $7.19 billion on its original $25 billion investment under the government’s Troubled Asset Relief Program.

If that price level holds up, it would be the largest U.S. profit on any such TARP investment, exceeding $4.27 billion on dividends and sale proceeds from preferred stock and warrants in Bank of America Corp., according to Linus Wilson, a finance professor at University of Louisiana at Lafayette.

The Treasury’s sale plan applies only to its holding of 7.7 billion common shares. The U.S. also owns $5.3 billion of Citigroup trust-preferred securities and warrants to buy 465.1 million shares. Under the so-called dribble-out plan announced Monday, the government will initially sell the Citi shares steadily in the market rather than try a giant “block” sale at a discount to the market price.

The last big Citigroup sale in December, aimed at repaying a $20 billion government holding of preferred stock, came at a big discount to the market price after several other big bank stock sales, depressing the market price for Citi’s stock for two months.

At Citigroup’s current market price, the planned sale to investors would give the government a profit of more than $7.19 billion on its original $25 billion investment under the government’s Troubled Asset Relief Program. Above, a Citibank branch in San Francisco.

At the time of that sale, the Treasury agreed not to sell its remaining 7.7 billion shares until March 16. The agency has said it planned to sell the stock this year, and the price has recently been surging in anticipation that the overhang of government ownership would be eliminated.

The stock rose last week on reports that the government would avoid a block sale at a discount to the market, according to Jeffrey Harte, an analyst at Sandler O’Neill & Partners LP.

However, the Treasury didn’t rule out a block sale later, saying only that the sale would begin under “a pre-arranged written trading plan.” Citigroup shares fell 13 cents, or 3.02%, to $4.18 in 4 p.m. trading on the New York Stock Exchange.

Because of its low price and volatile fortunes, Citigroup stock has traded heavily over the past year. Since Dec. 17, it has accounted for 10% or more of NYSE volume on 31 different days. At its recent daily average volume of 500 million shares, the Treasury could sell 50 million shares daily at the 10% target, a pace at which the sale would take about seven months.

The government’s possible profit on the Citi stake represents an unexpected windfall from an investment originally designed “to prevent an even worse recession,” said Douglas Elliott, an analyst at the Brookings Institution, a Washington, D.C. policy research organization.”

$65 Billion Wind Energy Investment by China WindPower, Iberdrola SA, and Duke Energy!

Tuesday, March 23rd, 2010

Wind-power will generate almost 41 gigawatts of energy generation capacity this year.  This is the equivalent of 34 new nuclear power plants!  Wind development is growing exponentially, especially in the U.S. Southeast and Midwest.  $65 billion will be invested in new wind development this year!  Turbine costs are falling, driving up demand as government subsidies further enhance the wind energy market.  Renewable energy is certainly gaining market share, but at lower margins for manufacturers.

According to Mr. Loon and Mr. Morales of Bloomberg, “China WindPower Group Ltd., Iberdrola SA and Duke Energy Corp. will lead development of an estimated $65 billion of wind-power plants this year that let utilities reduce their reliance on fossil fuels.

The estimate from Bloomberg New Energy Finance assumes a 9 percent annual increase in global installations of wind turbines, adding as much as 41 gigawatts of generation capacity. That’s the equivalent of 34 new nuclear power stations.

Utilities that built natural gas-fired generators during the last decade are increasingly erecting turbines and buying wind power from competitors, tapping a renewable-energy source as governments consider ways to penalize carbon-based fuels.

“Wind development is moving fast,” James Rogers, chairman of Duke, which owns utilities in the U.S. Southeast and Midwest, said in London on March 18 at the Bloomberg New Energy Finance conference. “In the last 10 years, 90 percent of plants we’ve built have been gas. I’ve used gas plants like crack cocaine.”

While gas-fired plants are relatively cheap to build and pollute less than coal plants, they still emit carbon dioxide, which will carry higher costs if governments tighten environmental rules.

Last year, $63 billion was invested in turbines, adding 37.5 gigawatts of new capacity and bringing potential output of electricity from wind to 157.9 gigawatts, according to the Global Wind Energy Council, a Brussels-based industry group. A third of those turbines were installed in China, which doubled its capacity to 25 gigawatts.

Lower Prices

Wind is gaining support as turbine costs fall and government stimulus money helps pay for the plants. Prices for turbines have declined by about 15 percent to 1.05 million euros ($1.44 million) per megawatt over the past two years, according to William Young, an analyst at Bloomberg New Energy Finance.

“It makes sense and it makes money,” said Michael Liebreich, founder of the London-based consultant bought by Bloomberg LP in December.

If this year’s forecast holds, the new wind turbines may supply up to 12.3 million homes, less than the almost 33 million customers that the 34 nuclear plants would power with the same capacity, according to data from the U.S. Department of Energy and American Wind Energy Association. Output from a nuclear plant is steady while turbines work only when the wind blows.

Renewables Boom

Worldwide investment in renewable-energy, which also includes solar and biomass facilities, may top $200 billion this year after outlays fell 6 percent to $162 billion in 2009, Bloomberg New Energy Finance estimates.

That investment is moving ahead even after world leaders failed to reach a binding agreement limiting emissions from carbon-based fuels when they met in Copenhagen in December, Deutsche Bank AG Vice Chairman Caio Koch-Weser said. The cost of carbon permits for December 2010 traded in Europe has fallen 3.2 percent since that summit ended.

“The renewables story is gaining momentum independently now,” Koch-Weser said in an interview at the same conference. “I see with many clients from China to California to India now a really good renewables paradigm shift happening.”

This year, Duke plans to install 250 megawatts of wind equipment in the U.S., Rogers said. Bermuda-based China WindPower will invest about HK$900 million ($116 million) in 10 to 12 wind farms this year, nearly doubling its capacity, the company said on March 8. Iberdrola SA’s clean-energy unit expects to add 1,750 megawatts of new capacity in 2010, most of that from wind power, it said last month.

Market Share

Renewable energy sources may expand their share of the electric power generation market to 9 percent worldwide by 2030 from 2.5 percent now as gas use remains about 21 percent, the International Energy Agency estimates. Natural gas consumption has risen 20 percent since 2000, the IEA says.

Coal, which produces the most carbon when burned, also is benefiting from rising energy demand. Its market share for electric generation will grow 3 percentage points by 2030 to 44 percent, according to the IEA.

The world needs to invest $26 trillion through 2030 to meet growing energy demands, the IEA, an adviser to oil-consuming nations, said last year. Proven gas reserves are sufficient to provide supply for 60 years at current production rates, the group said in its World Energy Outlook, published in November.


Lower wind turbine prices mean more power for the same money, and developers are rushing to take advantage of $184 billion in economic stimulus money set aside for clean energy projects, said Mike O’Neill, president and chief operating officer of wind project developer Element Power.

“We are getting low-cost, low-risk money into this market,” O’Neill said. “You are getting money coming in.”

Making wind power even more attractive is its “scalability,” or the ease with which a developer can add turbines as demand rises, said Petra Leue-Bahns, chief financial officer of Ecolutions GmbH.

“Wind is relatively easy to install in big packets and then scale up,” she said. “Wind will probably reach grid parity” and be able to compete with fossil fuels without subsidies within four years, she said. Ecolutions invests in renewable-energy projects in Europe and Asia.

BP Plc, the world’s biggest oil producer, is investing in wind and solar power as renewable energy gains market share on fossil fuels.

“If you want to have the same size of company that you have today, then you need to start the shift,” said Katrina Landis, chief executive of the London-based company’s alternative energy unit. “It means to some degree giving up what you’ve done for the last 100 years.”

Dai-ichi Life Insurance Raises $11 Billion in Largest International IPO!

Tuesday, March 23rd, 2010

The equity markets having been roaring back in March, and equity underwriting has followed.  The largest global IPO was filed this week as Daiichi Mutual Fund Insurance filed an $11 billion IPO.  The last IPO of this size was the Visa IPO, which was $19.7 billion in March of 2008.  Daiichi stock was issued at a discount at 140,000 yen, instead of 155,000, ensuring a steady upward trend.  The stock is more expensive than T&D holdings, but less expensive than Soniy Financial Holdings.  Daiichi will use these proceeds to make acquisitions abroad.

According to Mr. Yamakazi of Bloomberg, “Dai-ichi Mutual Life Insurance Co. will raise 1.01 trillion yen ($11 billion) in the world’s biggest initial public offering in two years after pricing the IPO at the middle of its forecast range.

Japan’s second-largest life insurer priced 7.2 million shares in the demutualization at 140,000 yen each, according to a statement posted on the company’s Web site yesterday.

The offering is the largest since San Francisco-based Visa Inc. sold $19.7 billion in March 2008 and comes after money raised from IPOs in Japan fell to the lowest level in at least two decades last year. The price may ensure that Dai-ichi gains when it’s listed on the Tokyo Stock Exchange April 1, according to Ichiyoshi Investment Management Co.’s Mitsushige Akino.

“Most Japanese investors probably expected it to be 155,000 yen so it’s quite cheap,” said Akino, who oversees $450 million as chief investment officer of Ichiyoshi in Tokyo. “It’s the best scenario, where the price will rise bit by bit, rather than a short-lived popularity.”

The IPO by Dai-ichi, which will change its name to Dai-ichi Life Insurance Co., is also the biggest in Japan since Tokyo- based NTT DoCoMo Inc. went public in 1998, Bloomberg data show.

Dai-ichi’s market capitalization will be equal to 0.56 times embedded value, or the sum of its net assets and the current value of future profits from existing policies. That’s more expensive than T&D Holdings Inc., Japan’s largest publicly listed life insurer, and cheaper than Sony Financial Holdings Inc., the insurance and banking unit of Tokyo-based Sony Corp., data compiled by Bloomberg show.


“The pricing seems reasonable,” said Yoshihiro Ito, a senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $8 billion. “The question is how well it will do the on the first day of trading, given the prospect for life insurers in Japan.”

Dai-ichi is switching from mutual to stock-based ownership to expand fundraising options for acquisitions and partnerships as it grapples with an aging society and the slowest-growing economy in Asia.

Nomura Holdings Inc. and Mizuho Financial Group Inc. in Tokyo and Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch unit were hired to manage the offering. New York-based Goldman Sachs Group Inc. was a global arranger.


Dai-ichi will have 10 million shares outstanding, 5 million of which were sold in Japan and 2.1 million overseas, according to the statement. The Tokyo-based company will issue 100,000 shares in an overallotment and another 2.9 million will be distributed to policyholders.

T&D Holdings of Tokyo has a market capitalization of 684.9 billion yen, or 0.47 times its embedded value, based on a sale document distributed by banks involved with the Dai-ichi offering. Tokyo-based Sony Financial has a ratio of 0.84.

Prudential Plc of London, the U.K.’s biggest insurer, paid 1.69 times the embedded value of New York-based American International Group Inc.’s Asian life insurance unit in its takeover announced this month.

Japanese companies had raised $490 million yen in six IPOs so far this year, compared with 15 U.S. deals totalling almost $3 billion, data compiled by Bloomberg show.

The Dai-ichi deal will make this year the biggest for Japanese IPOs since 2006, when companies raised 2.14 trillion yen, Bloomberg data show. Sales sank to 56 billion yen last year as the collapse of New York-based Lehman Brothers Holdings Inc. froze credit markets and the Topix index posted the worst performance in the world’s 20 biggest equity markets.


Dai-ichi, which had 8.2 million policyholders as of March 2009, will use proceeds of the sale to convert to stock-based ownership from policy-based mutual ownership. The switch will expand fundraising options for acquisitions and partnerships as the population declines, the company told policyholders in June.

Japan’s life insurers are struggling for new customers after the first global recession since World War II. The nation’s economy will grow less than 2 percent annually through at least 2012 after contracting 1.2 percent in 2008 and 5.2 percent last year, estimates compiled by Bloomberg show.

That compares with growth of 9.6 percent projected for China this year, while gross domestic product in the U.S. will rise at least 3 percent annually from 2010 to 2012, the estimates show.

Almost 23 percent of Japan’s 126 million people will be older than 65 this year, compared with 13 percent in the U.S., data compiled by Bloomberg show. Japan is the world’s oldest society, with a median age of 44, according to the United Nations’ World Population Ageing 2009 report.”

Google Alumni Fund Angel Investment Deals

Saturday, March 20th, 2010

Google’s founders are funding 200 startups as angel investors.  These investors are using $170 billion in capital Google has generated for employees over the last decade.  More than 40 ex Google employees funded over 200 firms since 2005.  These deals have very high IRR hurdles, but high risk for their financiers.  Google alumni have backed Twitter, Tesla Motors, and Tapulous Inc. Senkut is the name of a middle aged product manager of Google who had made investments between 20-200,000 in 65 startups.  Chris Sacca is another successful angel investor who put in $50,000 into Twitter in 2007 as it was starting.  He has backed 31 startups since then.

According to Mr. Ante of Bloomberg, “during the holidays last year, Aydin Senkut and Elad Gil gathered 50 of their friends at a health- food restaurant in Palo Alto, California. Over turkey burgers and tofu wraps, they talked about technology trends and how to get rich. Or, more precisely, how to get richer.

Senkut, Gil and their dining circle are alumni of Google Inc. Since going public six years ago, Mountain View, California-based Google has generated more than $170 billion for its employees and investors. Many of the millionaires the company has produced are active angel investors, attempting to add another zero to their bank accounts and another company to their list of accomplishments, Bloomberg BusinessWeek reports in the March 8 issue. “I feel like we have such a strong network, it’s almost like we’ve recreated Google outside of the Google walls,” says Andrea Zurek, a 39-year-old backer of 26 startups and, until 2007, regional sales manager at Google

More than 40 ex-Googlers have invested in about 200 fledgling companies since 2005, according to the research firm YouNoodle Inc. and reporting by Bloomberg BusinessWeek. At least a half-dozen current Google executives, including Chief Executive Officer Eric Schmidt and co-founders Larry Page and Sergey Brin, are also financing young companies. YouNoodle defines people as Google angels if they’re investing their own money, investing out of a firm that uses only their money, or investing out of a firm in which a majority of partners are ex- Googlers.

‘Very Risky Deals’

Numerous angel-watchers say the Google group has more in common than just pedigree. The alumni are getting into “very risky deals that can be extremely rewarding,” says Jeff Clavier, a venture capitalist who founded Palo Alto-based SoftTech VC in 2004. “They have been very active as a group over the past two to three years.”

Companies backed by Googlers include Twitter Inc., Tesla Motors Inc., and gamemaker Tapulous Inc. “As Google matures, its alums are continuing to have a huge impact on Silicon Valley and the tech industry,” says Ron Conway, one of the Valley’s most active angel investors, who has backed 190 companies, including Google, Facebook Inc. and Twitter.

One reason for the Google angels’ success, say entrepreneurs, is that they have more to offer startups than just money. Bart Decrem, a 42-year-old Stanford University law grad, says he turned to the Google network when he was starting Palo Alto-based Tapulous in 2008. The company’s Tap Tap Revenge game requires players to tap on-screen balls to the beat of a song — not exactly a sure thing of an idea.

Tap Tap

Decrem says he thought the game might become a substantial business by selling it on Apple Inc.’s iPhone. He says he raised $500,000 from a dozen angels, including Senkut and Zurek, who advised on strategy, connected the company with new partners in Asia, and helped it explore platforms for mobile phones that use Google’s Android software. Today, Tap Tap games have been downloaded more than 25 million times and Tapulous is profitable, says Decrem, without providing specifics about the company’s finances.

Google’s angels dabble in a wide variety of businesses. Zurek says she has money in a premium vodka maker and a South Korean frozen yogurt emporium. Yet the angels tend to concentrate their cash in what they know — search technology, mobile computing and the consumer Internet. Twitter, backed by former Google executive Chris Sacca, is pioneering a new field of real-time communications. The online personal-finance service, with money from Senkut, was bought by Intuit Inc. last year for $170 million. Search provider Powerset, backed by Senkut, was acquired by Microsoft Corp. in 2008, and its technology became a part of the Bing search engine, according to a post on a Microsoft blog.


Senkut, a 40-year-old native of Turkey, has made investments of between $25,000 and $150,000 in 65 startups, by YouNoodle’s reckoning. Senkut joined the company in 1999 as a product manager. He left in 2005 and promptly took his mother to Paris for her 60th birthday — and treated himself to a Lamborghini.

With that out of his system, he set about becoming a full- time angel. Eleven of the companies he has invested in have been acquired by Google, AT&T Inc. and Microsoft, according to his Web site.

Senkut also organizes two regular networking events for fellow alums, one for angels and entrepreneurs, and another for all ex-employees, at spots such as the Calafia Café in Palo Alto, owned by Google’s first in-house chef.


Senkut is raising money for his firm, Felicis Ventures LLC, according to two angel investors, and declined to comment on his investments for this story. (Securities laws prevent the public solicitation of funds.) In an interview last October, after he had sold seven of his companies, Senkut said his investments had produced double-digit annualized returns and that he was being pitched new business ideas several times a day.

If Senkut is the established star among the Google angels, Chris Sacca is the up-and-comer. The 34-year-old Georgetown University law grad joined Google in 2003 and left in 2007. Of the 31 startups he says he’s backed, his biggest hit is Twitter, in which he invested $50,000 just as it was getting started in 2007. Sean Garrett, a Twitter spokesman, declined to comment on the company’s finances.

Working out of a 3,000-square-foot home in Truckee, California, a ski town near Lake Tahoe, Sacca hikes and snowshoes most mornings before breakfast and commutes to San Francisco for three days every two weeks. It’s an unconventional way to supervise investments — Sacca has an unconventional approach to investing, period.


One Friday night in December 2008, he posted a message on Twitter asking if any startups were working late.

“We tweeted back, ‘We’re FanBridge and we work hard every Friday night,’” says Spencer Richardson, its 25-year-old co- founder. New York-based FanBridge makes software that helps musicians manage marketing and relationships with their fans.

A few weeks later, Sacca flew to New York and met with the company’s founders. “They had day jobs and built this site that had 20 million users, adding 100,000 users a day,” says Sacca. “It was a no-brainer.”

Sacca invested $50,000 and pulled in several hundred thousand dollars from other angels. Last year, FanBridge’s founders say they considered offering their products to authors, comedians and other artists; Sacca advised them to stay focused on the music industry. Today, FanBridge is profitable and used by 55 million music fans, according to the company. “The feedback from him was, ‘Start by being the best at something, then branch out,’” says Richardson.

Breakout Companies

The Google angels may have several more breakout companies developing in their portfolios. Sacca has invested in San Francisco-based Lookout, a developer of security software for mobile phones. According to YouNoodle, several ex-Googlers and current Vice President Marissa Mayer are behind San Francisco- based Square Inc., which aims to displace credit-card swiping machines with a cheaper payment system that works through smartphones. And current Google engineer Joshua Schachter helped finance Foursquare, a New York-based mobile-phone service that lets friends share tips on local hotspots and is being used more than a million times a week, according to YouNoodle.

“There is an ecosystem for capital in the Valley, and Google is a part of it,” says Schachter.

Paul Graham, who co-founded the Mountain View-based startup incubator Y Combinator, says the tech industry has just begun to appreciate that Google’s wealthy ex-employees may have not just a single innovative second act, but potentially hundreds of them. “When people write the history of Silicon Valley 20 years from now,” says Graham, “the true impact of Google could come more from all the things that Google people go on to do after they leave Google.”

AIG Divests of Asian Life Insurance Unit, Making Sale to Prudential Plc for $35.5 Billion

Saturday, March 20th, 2010

AIG made headlines recently with its sale of its Asian Insurance business for over $35 billion to British insurance firm Prudential plc.  This allowed the failed insurer to raise enough to pay back the $20 billion immediately due to the government and slowly pay back its debt to taxpayers.  The company also is pressing to sell its Alico unit to bidders including Metlife.  The proceeds of this sale would also go the Fed.

According to the Washington Post, “American International Group agreed on Monday to offload its prized Asian life insurance business for $35.5 billion, the troubled firm’s largest asset sale since it was bailed out by the federal government during the height of the financial crisis.

The firm plans to use the proceeds from the sale to pay down nearly three-fourths of the $48 billion owed to the Federal Reserve. AIG separately received more than $47 billion from the Treasury Department’s Troubled Assets Relief Program.

The buyer, British insurer Prudential — not linked to the U.S. insurance firm Prudential Financial — agreed to pay $25 billion in cash and $10.5 billion in stock and other securities. Under the deal’s structure, the U.S. government will have an interest in Prudential’s fortunes through its massive stake in AIG.

The sale generated more for AIG than what some analysts had expected. AIG had been receiving weak bids for the division and was planning to spin it off in an initial public offering on the Hong Kong stock exchange. That process could have taken a long time and produced less money than the deal with Prudential, company and government officials said.

“We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayers,” AIG chief executive Robert Benmosche said in a statement.

Shares of AIG soared nearly 10 percent at the opening bell before closing the day up 4 percent, at $25.78. The insurer’s stock hit a low of $7 during the financial panic.

Wall Street often views big deals as a vote of confidence in the global economy. And on Monday, the Dow Jones industrial average rose 78.53 points, or 0.8 percent, to 10,403.79, with much of the gain occurring right after the sale was announced. The Standard & Poor’s 500-stock index, a broader measure of the market, jumped 1 percent and moved into positive territory for the year.

The sale of the Asian unit, American International Assurance, would generate more money for AIG than the sum from nearly two dozen divisions it has agreed to divest from since fall 2008. AIG is pressing to get a multibillion-dollar deal for another major insurance unit known as American Life Insurance Co., or Alico. Proceeds from that sale would also go to the Fed.

The price AIG fetched for its Asian division affirms a decision by the Fed to give the company more time to sell its assets. Last year, AIG would have had to sell the unit during the recession to meet its debt obligations to the central bank. Instead of cash, the Fed accepted an equity stake in the Asian division as repayment.

The central bank’s bailout package to AIG came in two parts: a $23.4 billion line of credit and a $24.5 billion interest in American International Assurance and Alico.

Of the $35.5 billion from Prudential, AIG will use $16 billion to pay back the Fed’s interest in American International Assurance. Another $9 billion will be used to reimburse the Fed’s line of credit. AIG will eventually be able to sell its $10.5 billion in Prudential stock and securities, which will be used to further repay the Fed’s line of credit.

AIG’s health has improved steadily since the federal government’s bailout, though it is still losing money. Last week, it reported a $8.9 billion loss for the last three months of 2009, bringing its full-year results to a loss of $10.9 billion. In 2008, the firm recorded a $99.3 billion loss.

According to Kevin Crowley and Zach Miller of Bloomberg “American International Group Inc. agreed to sell an Asian life insurance unit with 20 million customers to Prudential Plc for $35.5 billion in the company’s biggest divestiture since it was bailed out by the U.S.

Prudential, Britain’s biggest insurer, will pay $25 billion in cash and $10.5 billion in stock and other securities for AIA Group Ltd., the London-based insurer said in a statement today. The insurer said it plans to raise $20 billion in a rights offering and sell about $5 billion of bonds to finance the cash part of its offer.

The sum raised in the sale would exceed the total of more than 20 other deals announced by AIG since its 2008 rescue. The firm had planned an initial public offering for the unit after an auction of the business previously failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, according to a person with knowledge of the matter.

The agreement is “very good news for AIG and a major step toward quickly repaying U.S. taxpayers at a time when, in our view, the company appeared resigned to carrying out a time- consuming IPO,” said Emmanuelle Cales, an analyst at Societe Generale SA.

AIG gained $2.45, or 9.9 percent, to $27.22 at 9:42 a.m. in New York Stock Exchange composite trading. Prudential fell 12 percent to 533 pence in London trading. Prudential had more than doubled in 12 months through Feb. 26, giving the insurer a market value of 15.3 billion pounds before the purchase was announced.

China, Australia

Prudential’s purchase is Chief Executive Officer Tidjane Thiam’s first since he took over five months ago, and is the biggest announced by any company worldwide this year, according to data compiled by Bloomberg. New York-based AIG will own about 11 percent of Prudential following the transaction, Thiam told reporters today.

Prudential is trying to boost sales in Asia as growth in the U.K declines. By acquiring AIA, Thiam gets a business with more than 90 years in Asia and more than $60 billion of assets in 13 markets spanning China to Australia. The price is about 50 percent greater than Prudential’s market value. Hong Kong-based AIA, founded in 1919, sells life, accident and health insurance policies, and private retirement planning and wealth management services, its Web site shows.

“It shows the company is very bullish on the Asia market,” said Luo Yi, a Shenzhen-based analyst at China Merchants Securities Co. “The Chinese market has vast potential.” McKinsey & Co. has estimated that 40 percent of global life insurance premium growth will be in Asia in the next five years.

‘Faster Track’

“A sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayer,” AIG CEO Robert Benmosche said in a statement today.

“AIG gave a $9 billion stake in American Life Insurance Co., known as Alico, and $16 billion in AIA, its biggest non-U.S. life insurance units, to the Federal Reserve in December. AIG will redeem the Fed’s $16 billion interest in AIA with proceeds from the sale and repay about $9 billion more on its Fed credit line, the insurer said today.

The $10.5 billion in securities obtained from Prudential will be sold “over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods,” AIG said in a statement. Proceeds will be used to repay debt on the credit line, the company said.

Credit Line

AIG owed about $25 billion on the line as of last week. The insurer had drawn more than $40 billion before reducing the sum in December when it turned over stakes in the units.

The Federal Reserve Bank of New York agreed last year, as part of AIG’s fourth bailout, to allow the company to pay down its debt with an equity interest in the life units before completing a sale. The plan reduced pressure on AIG to sell in early 2009 when potential bidders were hobbled by losses and the inability to raise funds.

Prudential is paying about 1.69 times the embedded value of AIA in 2009. Chinese insurers are trading for about 2.9 times embedded value, and Axa Asia Pacific Holdings trades at about 1.7 times, according to Thiam. Embedded value estimates a company’s net worth excluding new business.

“Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart, who oversees about $3.3 billion at 7 Investment Management in London, including Prudential shares. “It puts them into a different league.”

The insurer plans to list its shares on both the Hong Kong Stock Exchange and the London Stock Exchange following the transaction. It will keep its headquarters in London.

Rights Offering

Credit Suisse Group AG, JPMorgan Cazenove and HSBC Holdings Plc agreed to underwrite the $20 billion rights offer in full. The shares are likely to be sold for 40 percent less than today’s price, Thiam told reporters. Prudential will pay about $1 billion in fees and other costs related to the offer. Lazard Ltd. is also advising Prudential on the deal.

The offering would be the biggest since Lloyds Banking Group Plc’s 13.5 billion pounds ($20.4 billion) sale in December, still the U.K.’s largest.

“If you’ve got backing from a few banks and a few major shareholders, there will be a way to make this deal happen,” said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “The question is the cost and the risk involved.” The insurer may be forced to sell assets in India and China to comply with local foreign-ownership regulations, he said.

India, China Talks

Thiam said Prudential is in talks with regulators in India and China. The insurer intends to keep its stake in a joint venture with China’s Citic Group, he said. In India, where both Prudential and AIG have separate joint ventures, regulators have told the company it can’t have two licenses, Thiam said.

MetLife Inc. has said it is in talks to buy AIG’s Alico, which operates in more than 50 countries outside the U.S. The insurers are discussing a price of about $15 billion, according to people with knowledge of the matter.

AIG’s bailout includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury Department and $52.5 billion to buy mortgage-linked assets owned or backed by the insurer.

AIG is getting advice on the AIA deal from Goldman Sachs Group Inc. and Citigroup Inc., and Blackstone Group LP is working with the AIG board on its overall restructuring plan. Morgan Stanley is counseling the New York Fed.

Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit.”

LA Basic Leveraged Buyout Modeling Video Available for Only $99!

Friday, March 19th, 2010

As the job hunt continues, many students have asked for online learning materials. After about 150 hours of video editing, our team has put together a host of videos on modeling for mergers and buyouts.

Our pilot video, LA’s Basic Leveraged Buyout Modeling works through a full basic leveraged model and includes excel shortcuts. This is ideal for students who do not understand what -MIN functions are and how to create a 3 statement model in 30 minutes.

The LBO video is available for $129.99 on DVD and $99.99 online. Please e-mail for screen shots and a link to download and purchase.

Two excel templates will be included with purchase.

All purchases can be done in person or through Paypal.

Our Paypal ID is

A host of more complicated LBO modeling videos will be available shortly, including a model that will take more than 8 hours to complete.

Blackstone Buying Failed Banks with Aid of Former Bank President Oates

Thursday, March 18th, 2010

While TPG recently returned more than $2 billion in commitments to purchase failed banks, Blackstone has found a former bank President who is guiding them to buy financial institutions in the United States, a very risky, but potentially lucrative endeavor.

According to Ms. Thornton and Mr. Keehner, “Blackstone Group LP, the world’s largest private-equity firm, is in preliminary talks to raise $1 billion to buy failed banks, according to a person with knowledge of the discussions.

The New York-based firm is working with R. Brad Oates, a former president of Bluebonnet Savings Bank, to raise the funds for a blind pool, said the person, asking not to be named because the information is private. Blind pool investors usually back a single management team without having a say in what company it will acquire.

Peter Rose, a spokesman for Blackstone, declined to comment.

Buyout firms are seeking bargains as lenders fail at the fastest pace since 1992. Regulators have seized at least 160 lenders since Jan. 1, 2009, and the FDIC’s confidential list of “problem” banks stands at 702 with $402.8 billion in assets, according to a Feb. 23 report.

Related Cos. founder Stephen Ross and partners Jeff Blau and Bruce Beal Jr. raised about $1.1 billion last month to help their SJB National Bank acquire a seized U.S. lender. Among their investors are New York hedge-fund firm Elliott Management Corp. and David Einhorn’s Greenlight Capital Inc., a person with knowledge of the matter said last month.

Regulators have been debating how much leeway to give private buyers of failed banks because of concern that they may take too much risk with federally insured deposits. Some investment groups have recruited former bankers as officers to reassure regulators.

William Isaac, the Federal Deposit Insurance Corp.’s former chairman, is also leading a group of ex-regulators and bankers raising $1 billion to buy failed lenders in the U.S. Southeast, a people briefed on the plan said last month.

Last May, Blackstone partnered with WL Ross & Co. and Carlyle Group to buy BankUnited Financial Corp. The group agreed to inject $900 million and named John Kanas, the former head of North Fork Bancorp, to run the Florida lender after it collapsed.”