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KBC to Sell Insurance Broker Fidea to JC Flowers

Source: Business Week

Posted on 18 Oct 2011

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KBC Groep NV, the recipient of 7 billion euros ($9.7 billion) in Belgian rescue funds, agreed to sell its insurance broker Fidea NV to JC Flowers & Co. LLC for 243.6 million euros.

The sale will boost KBC’s capital by about 100 million euros and result in a 0.1 percent increase in its Tier 1 ratio, KBC and New York-based private equity firm JC Flowers said in a joint statement today. The transaction will cut earnings by about 100 million euros, Brussels-based KBC said.

KBC, Belgium’s biggest bank and insurer by market value, is selling assets to raise funds to repay its bailout. The firm last week agreed to sell its private-banking unit to a Qatari investor for 1.05 billion euros. It will also divest its Polish bank and insurance subsidiaries in exchange for European Union approval for its rescue.

“Given the banking uncertainty in general, and in Belgium due to Dexia in particular, we believe it is good that KBC did two divestments in a short time,” said Cor Kluis, an Utrecht- based analyst at Rabobank Groep. It is “understandable in current market circumstances” that the takeover price was “marginally lower” than Kluis’s estimate of 300 million euros, the analyst said.

The Belgian government agreed last week to buy Dexia Bank Belgium NV for 4 billion euros, the first step in the rescue and breakup of Dexia SA, which became inevitable after concern over European sovereign debt holdings caused its short-term funding to evaporate.

‘Difficult Choices’

KBC shares fell 3.7 percent to 16.74 euros as of 3:53 p.m. in Brussels, after earlier rising as much as 3.6 percent. That gave it a market value of 6 billion euros. The Bloomberg Europe Banks and Financial Services Index fell 0.9 percent at that time, as Dexia retreated 16 percent.

“Today’s deal is yet another step in the implementation of our updated strategy,” KBC Chief Executive Officer Jan Vanhevel said in the statement. “The divestment of Fidea is one of the difficult choices we have had to make to meet the demands of the European Commission.”

The purchase amount includes 22.6 million euros pre- completion dividend and is subject to pricing adjustments on closing accounts, the companies said. The transaction is expected to be completed in the first quarter of 2012.

Book Value

The sale price values Fidea at 0.8 times 2010 book value, “on the low valuation range of our 21 European Insurance companies’ coverage universe across nine countries,” AlphaValue Bank analyst Christophe Nijdam said. “But everybody knows that financial institutions’ valuations are currently one-third below the ones prevailing before the summer.”

JC Flowers, the private equity firm founded in 1998 by J. Christopher Flowers, targets investments in the financial- services industry and has invested more than $5 billion in Europe, according to the statement. It also owns NIBC Bank NV in the Netherlands.

JC Flowers was advised by Credit Suisse Group AG, Deloitte and Cleary Gottlieb Steen & Hamilton LLP. KBC was advised by KBC Securities, Morgan Stanley, Eubelius and Linklaters LLP