Citigroup Prepares Travelers for the Spin Cycle
By Robert Warne - December 21, 2001Taking advantage of the current market climate of strong pricing for property and casualty insurance, Citigroup Corp. acted on cue and announced plans to spin-off its Travelers Property Casualty Corp. (TAP) subsidiary.
Citigroup, the nation’s largest financial services firm made the announcement Dec. 19. The spin-off creates one of the nation’s largest independent property casualty insurers.
Sanford I. Weill, chairman of Citigroup said the move is intended to create the best shareholder value. “It would make sense for us to sell 20 percent of TAP to the public to raise some cash as well as getting a dividend of $1 billion dollars from TAP; and utilize that money for the growth of Citigroup Corp. and some of its other businesses that have a higher hurdle rate as far as return on equity that is historically higher than the P&C business.”
The sale of up to 20 percent of Travelers to the public is estimated to raise about $5 billion at a low tax rate. Much of the stock that will be sold is the same stock Citigroup bought back from the public a few years ago. Giving the remaining 80 percent to stockholders is also another calculated move to minimize tax exposure for shareholders as well.
The decision will generate capital that will enable Citigroup to focus on faster growing areas of the financial services industry, said Weill.
During a conference call Citigroup CFO Todd S. Thomson, said, the move facilitates a strategic direction for TAP independent of Citigroup’s.
Even though it was a good year for Travelers Property, it still only generated 14 to 15 percent returns in comparison to Citigroup’s other subsidiaries’ 20 percent-plus rate.
Citigroup reported third-quarter losses of $502 million resulting from 9/11 claims for property damage, business interruption, workers’ compensation and life insurance. Citigroup expects the move will take some of the drag off its stock prices caused by TAP.
Weill was Travelers Group’s CEO when it merged with Citicorp in 1998. Prior to the merger, in 1996 Weill spun off TAP’s segment. Robert I. Lipp, a Citigroup director, will now serve as TAP chairman and CEO, a position he held in the early ’90’s.
Lipp said, “This spin-off positions Travelers Property Casualty to participate independently in the accelerating consolidation of the insurance industry.”
Citigroup will maintain a relationship with TAP by offering investment advisory services and offering TAP products. Weill said, “Cross selling has also been an important part of what we do.”
Registration papers for the spin-off will be filed mid-January, according to Weill. “The company will have a strong balance sheet and it is operating in a strong pricing environment.”
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