AEGON NV, the Dutch parent company of Scottish Equitable, has signed a definitive agreement for the largest life insurance acquisition ever in the US.
The deal, which is also the largest to date for a Dutch financial institution, is for the $3500m (#2069m) purchase of Providian Corporation based in Louisville, Kentucky.
The transaction is expected to be completed in the first half of 1997.
The acquisition will increase Aegon Group's assets, which currently total more than $100bn (#59bn) by 25%.
In terms of pretax earnings, Aegon's US operations will almost double.
The Providian organisation is comprised of three insurance divisions - the Agency Group, the Direct Insurance Group, and the Capital Management Group - and one banking division.
The insurance divisions will become part of Aegon USA while Providian Bancorp will be spun off as an independent company.
The deal makes Aegon one of the top three European insurers and promotes it to number 11 in the US.
It comes as high costs and tough competition are forcing rapid consolidation in the global life insurance industry.
Aegon chairman Kees Storm said the group's existing US operations and those of Providian were complimentary and would be earnings-enhancing in the near future.
A company spokesman was quoted as saying the acquisition would increase earnings by about 5% in 1998.
``This record-setting acquisition is fully in line with Aegon's stated strategy,'' Mr Storm said.
``It is earnings-enhancing, highly compatible and will provide a healthy boost to our growth into the next century.''
Mr Storm added that profit margins in the group's US division should increase because the deal was effectively a hedge against interest rate fluctuations.
``It's a weapon against the influence of changes in interest rates,'' he said.
``When they rise it's good for our home services, but not so good for other units.''
The deal will involve a tax-free share swop. Providian shareholders will receive Aegon stock worth $2620m (#1549m), which is equivalent to $28 per share.
Aegon USA will assume loans worth $780m (#461m) and preferred stock worth $100m (#59.1m).
Providian shareholders will also receive shares in the independent Providian Bancorp.
News of the deal excited analysts and the market. Aegon shares added 10.90 guilders, or 11%, to 110.10 on an otherwise quietly firm Amsterdam bourse.
``This is a very positive acquisition,'' Dutch-based IRIS analyst Bart van der Feen said.
``Looking at the earnings per share, we expect an increase of between 4% and 8%.
``One of the main points is that the deal is to be mainly financed internally without a major share issue.''
Mr Storm signalled that Aegon, which has substantial operations in the US, the UK, the Netherlands, Spain and Hungary, would be interested in further acquisitions if appropriate opportunities came along.
``I don't exclude further acquisitions,'' Mr Storm said. ``We have one to 1.5 billion guilders (#508m) and we've set no limits on ourselves.
``If we see possibilities, for example, in Spain, we'll do it. If it's small, we can pay with our own capital. If a bigger opportunity comes up, we'll make use of the capital markets.''
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