Primerica Corp. said Sunday that it will pump $772.5 million into Travelers Corp. in exchange for a 27% stake in the financially struggling insurance company.
The arrangement will also give Travelers stakes in two Primerica units.
In addition, Primerica said its chairman, Sanford Weill, will begin working with Travelers' management to help direct operations. New York-based Primerica is a diversified financial services company.
Separately, Travelers said it will take a $132-million after-tax charge in the third quarter for reorganization costs, including elimination of 3,500 jobs--more than 10% of its work force--in the next two years. Travelers, based in Hartford, Conn., employs 33,500, said spokesman Dan Kaferle.
"The reduction in employment will be achieved wherever possible through attrition and early retirement," said Edward Budd, Travelers' chairman and chief executive. "However, terminations will be necessary."
Savings from the restructuring are expected to reach $94 million a year by 1994, Travelers said.
Under the investment agreement, Travelers will sell 38 million shares, valued at $19 each, to Primerica for cash and parts of two businesses. Travelers will get 50% of Gulf Insurance Co., a Primerica property-casualty insurance firm, and 100% of the preferred provider organization and third-party administrator networks of Primerica's Transport Life/Voyager Group, the companies said.
The agreement with Primerica brings the total capital that Travelers has raised in 1992 to $1.4 billion. In March, the company sold $300 million worth of 9.5% senior notes, due 2002, and in June it raised $375 million through the sale of 14 million Series B preferred shares at $25 each.
"We see this as a significant investment by Primerica in the future of a sound company--and a changing industry--in which we believe the long-term opportunities far exceed the near-term challenges or problems," Weill said. "We intend to help work through problems enabling Travelers to build on its competitive strengths and continue to grow the financial assets it manages."
In the second quarter, Travelers earned $74.8 million, or 67 cents, from operations, down from $98 million, or 92 cents, during the 1991 period. A tax credit of $2.9 million resulted in earnings of $77.7 million, or 70 cents a share, compared to earnings of $90.7 million, or 85 cents, in 1991's first quarter.
Including the second-quarter tax credit, Travelers earned $140.8 million, or $1.27 a share, in the first half of 1992, down 23.4% from $183.8 million, or $1.74 a share, in the first half of 1991.
Last week, Travelers said it expects its losses from Hurricane Andrew to range between $175 million and $225 million.
As part of the agreement, Weill and James Dimon, president and chief financial officer of Primerica, were elected to Travelers' board of directors. Weill will chair the finance committee of Travelers' board. Primerica will nominate two additional board members when the transaction is closed, giving Primerica's representatives 25% of Travelers' board.
The new stock will increase the number of Travelers' outstanding shares to 142.7 million. The agreement contains a "standstill" clause that prevents Primerica from buying more shares for five years without the consent of Travelers' directors.