2 Insurance Brokerages Will Merge : Transamerica Plans to Swap Unit for 39% of Sedgwick Group
Transamerica Corp. agreed Tuesday to merge its Fred. S. James & Co. insurance-brokerage subsidiary into London-based Sedgwick Group in a $667.4-million transaction that will give Transamerica global reach in that business.
Under the deal, Transamerica will receive a 39% stake in the expanded Sedgwick Group, which will become the world’s third-largest insurance-brokerage firm in terms of revenue and the second largest in terms of profits.
Transamerica’s move is just the latest in a wave of consolidations in the worldwide financial-services industry.
The deal will give Sedgwick entree into the U.S. and Canadian insurance-brokerage business, where James is strong. Transamerica, in turn, will gain access to Sedgwick’s international network, which includes 163 offices in 59 countries.
A stand-still agreement will prevent Transamerica from increasing its stake in Sedgwick for 4 1/2 years, James R. Harvey, Transamerica’s chairman and chief executive, said in an interview.
Only Major Holder
Nonetheless, Harvey noted, Transamerica will be Sedgwick’s only major shareholder and will have seven representatives on the company’s 21-person board. As the partnership between the two companies develops, he said, Transamerica might seek to acquire the rest of Sedgwick--but only “on a friendly basis.”
Insurance industry analysts applauded the transaction, saying it would boost Transamerica’s net income at little cost to the company. James, which Transamerica acquired for $300 million in cash in 1982, posted net income of $15 million last year.
Sedgwick posted net income of $63 million in 1984. Transamerica’s 39% share of Sedgwick and James’ combined income last year would have been $30 million. “It’s definitely a good move for Transamerica,” said David Seifer, a vice president and insurance industry analyst at First Boston in New York.
Another analyst, Michael A. Lewis of E. F. Hutton, said the timing of the transaction seemed right. Insurance premiums, after falling during several years of intense price competition, are rising again. Insurance-brokerage profits should rise with them.
Sedgwick has long sought a bigger role in the U.S. market. The company tried--and failed--to acquire New York-based Alexander & Alexander Services, the second-largest insurance-brokerage company. New York-based Marsh McLennan is the largest insurance broker.
For Transamerica, the deal marks a continuing effort to return to its roots as a financial-services concern after disastrous forays into such diverse businesses as movie making (United Artists) and equipment leasing (Interway). Harvey sold United Artists soon after UA made the legendary box-office bomb “Heaven’s Gate.”
The 50-year-old Harvey, who underwent triple-bypass heart surgery on Jan. 1 after a heart attack, appeared fit and vigorous during the interview. He said his recovery has been assisted by stress-reduction techniques that he taught himself while in the hospital. “Doing exciting deals doesn’t hurt, either,” he joked.
In addition to insurance brokerage, Transamerica has interests in life insurance, property/casualty insurance, title insurance, consumer lending, manufacturing and transportation. The expanded insurance-brokerage operation could steer additional business to Transamerica’s other insurance units.
Last year, Transamerica posted net income of $171.5 million, or $2.64 a share, on revenue of $5.4 billion. Transamerica has total assets of $12.5 billion.
Sedgwick Group, with assets of $1.4 billion, had net income of $63 million on revenue of $304 million last year.
FORMING A GIANT INSURANCE BROKER Transamerica Corp. A diversified San Francisco-based company with subsidiaries in insurance, finance, manufacturing and transportation. The firm’s revenues increased 15% in 1984 to $5.4 billion while net income decreased 14% to $171.5 million.
Fred. S. James &. Co. Headquartered in New York, the Transamerica unit last year ranked as the sixth-largest insurance broker in the world in terms of revenue. It also provides insurance consulting and risk-management services.
Revenues Net Income 1984 $293 $15 million million 1983 245 11 million million 1982 241 15 million million
Sedgwick Group PLC
A London-based holding company whose subsidiaries are primarily in the business of insurance and reinsurance brokering. The group also provides underwriting agency services. Sedgwick last year ranked as the world’s fifth-largest insurance broker in terms of revenue and the largest based outside the United States.
Revenues Net Income 1984 $304 $63 million million 1983 253 51 million million 1982 224 46 million million
