Citigroup sale a new start for Primerica

That may allow Primerica to better capitalize on its organization of 100,000 independent salespeople, who operate similarly to multilevel marketers such as Amway, where higher-level agents earn a cut of commissions from the agents they recruit.

“They’re a sales organization,” said industry analyst Richard Bove. Primerica targets middle-income families, sending salespeople who “sit at your kitchen table” and earn commissions by selling life insurance, home equity loans and other products, said Bove, with Stamford, Conn.-based Rochdale Securities.

“It’s one of the parts that Citigroup doesn’t see as a part of a long-term business,” he said, but “I think it’s a viable business.”

The move, announced Nov. 5, comes as several of the world’s biggest financial conglomerates have been splitting into pieces or shedding non-core businesses to relieve pressure from red ink and government regulators.

In a report, analyst David Trone, with Fox-Pitt Kelton Cochran Caronia Waller in New York, estimated Primerica will be worth at least $1.6 billion. He expects Citigroup to sell at least $100 million worth of Primerica shares while initially retaining the rest.

Meltdown trickle-down

In a few cases, the fire sale on Wall Street has allowed metro Atlanta-based financial institutions to buy up businesses on the cheap. Last month, Atlanta money manager Invesco announced a $1.5 billion deal to acquire Morgan Stanley’s retail asset-management unit, including its Van Kampen mutual fund business.

On the other hand, the past year’s economic and financial turmoil also has landed some Atlanta institutions in the bargain bin. Of the more than two dozen Georgia banks that have failed in the past 15 months, Winston-Salem, N.C.-based BB&T and other out-of-state banks have acquired the deposits, loan portfolios, branches or other pieces of at least seven.

Government regulators’ efforts to retool some too-big-to-fail financial institutions also has muddied the picture for other financial businesses in the Atlanta area.

In late October, Dutch firm ING Group announced plans to shed its insurance and online banking business partly to pay back the Dutch government and meet regulatory demands from the European Commission.

It’s unclear how such moves, which ING expects to complete by 2013, may affect its 800-employee office in Atlanta, which is split about evenly between a money-management unit and corporate staff for its U.S. insurance and investment operations.

The decision will have “no immediate impact” on its Atlanta presence, said ING spokesman Dana Ripley.

But ultimately, ING’s U.S. operations will be split off with its global investment and insurance businesses, while ING’s banking business will remain based in Europe. Some portion could be sold or spun off.

“How the separation will occur hasn’t been determined,” said Ripley.

In a separate deal earlier this month, ING announced the sale of three-quarters of its retail brokerage business, including a small part of its staff in Atlanta, to a private equity fund. ING’s small U.S. executive team moved from Atlanta to New York about two years ago.

To Citigroup and back

Meanwhile, Primerica basically will make a two-decade round trip as a result of the planned spin-off by Citigroup.

Former high school coach Arthur L. Williams Jr. launched the firm in 1977 with the idea of recruiting an army of working-class people who could moonlight by selling term life insurance policies to friends and co-workers.

By the mid-1980s his company, A.L. Williams Corp., was publicly traded and the nation’s biggest seller of insurance policies. It was also courting controversy over complaints that its commission-only sales force often used high-pressure tactics to sell policies that weren’t always in its clients’ best interests.

In a quick succession of deals in 1988, A.L. Williams became part of Primerica, then part of Citigroup’s predecessor, Commercial Credit. The Primerica acquisition helped launch Citigroup’s climb to becoming one of the world’s largest financial conglomerates.

Fast forward to 2009. Citigroup had stumbled badly during the securities market crash and received $45 billion in bailout funds from the federal government.

Under pressure from regulators, Citigroup earlier this year shuttled Primerica and other non-core businesses it didn’t want to keep into a new unit, Citigroup Holdings. Citigroup plans to focus on big corporate customers and wealthier clients with its remaining businesses.

Citigroup sold its Smith Barney retail brokerage earlier this year, but hasn’t been able to find a buyer for Primerica.

Getting room to grow?

Industry analysts said Citigroup’s decision to spin off Primerica as a separate, publicly traded company won’t have much effect on the big banking firm. Primerica accounts for only about 2 percent of its revenues.

But the deal will free Primerica’s hand to rev up its growth by selling more mutual funds, insurance policies and other products from companies other than Citigroup, said industry experts.

Indeed, Citigroup’s shadow has sometimes been heavy on the former football coach’s company.

While Citigroup and other big Wall Street firms were in hot water with Congress earlier this year over generous executive bonuses and lavish business outings and other perks, Primerica canceled its giant biennial Atlanta convention that doubles as a pep rally and reward for up to 55,000 salespeople. The big shindigs for sales agents are a key part of its motivational and sales culture.

A spokesman for Primerica declined a request for an interview, referring a reporter to company filings with the U.S. Securities and Exchange Commission.

Under the initial public stock offering, expected to be completed in the first quarter of next year, Citigroup will sell roughly 10 to 20 percent of Primerica’s shares, although analysts expect the rest to be sold off eventually.

Meanwhile, Citigroup also will retain up to 90 percent of Primerica’s existing insurance contracts and related investments, liabilities and revenues.

Industry experts said the deal was structured to free Primerica from needing large amounts of cash and debt to support its insurance policies, which accounted for most of its $12 billion in assets as of the end of June. In its SEC filing, Primerica warned that its financial statements will look “materially different” after the split-up.

What’s being taken public in the stock offering “is essentially the Primerica distribution network, and its future production,” said UBS Securities analyst Glenn Schorr in a recent report.

Spin-off from Wall Street

Troubled financial giant Citigroup plans to sell part of Duluth-based insurance firm Primerica in a public stock offering, making it the latest piece of a Wall Street conglomerate likely to come under local control. But Citigroup plans to keep most of Primerica’s existing insurance policies and related assets and liabilities to give the company a clean start, according to industry analysts.

A brief look at Primerica's finances:

Year Revenues Net income

2005 $2.25 billion $593 million

2006 $2.25 billion $602 million

2007 $2.39 billion $594 million

2008 $2.20 billion $168 million

First half,

2008 $1.19 billion $269 million

First half,

2009 $1.09 billion $245 million

Source: Company filings with the Securities and Exchange Commission