To widen its presence in the emerging marketplace,
Principal Financial Group, Inc.
) inked a deal to buy Chile based AFP Cuprum S.A. (Cuprum). The
deal also entails Empresas Penta S.A. and Inversiones Banpenta
Limitada to vend off their 63% stake in Cuprum. Cuprum is a leading
pension manager in Chile with about $32.1 billion of assets under
The total purchase consideration equates to $1.51 billion based on
the present exchange rate. The transaction is expected to
consummate in the first quarter of 2013, subject to closing
Also, the acquisition will be immediately accretive to earnings
per share and return on equity. The Zacks Consensus Estimate for
2013 is currently pegged at $3.34, representing a year-over-year
increase of nearly 23%.
Moreover, Principal has been intensifying its focus on fee based
business that enables the company to return more earnings to
shareholders. Cuprum acquisition marks the sixth such transaction
in the past two years.
Principal Financial already has operations in the emerging markets
of Brazil, Chile and Mexico and this acquisition will give it an
added edge. Cuprum has a dominant position in the Chilean pension
market with the highest increase in market share among high value
It is noteworthy that increasing middle income group population,
steady economic growth and a sturdy improvement in voluntary
pension products have driven the Chilean pension market to
consistently grow at double-digit rates.
MOODYS CORP (MCO): Free Stock Analysis Report
PRINCIPAL FINL (PFG): Free Stock Analysis
To read this article on Zacks.com click here.
Principal believes that they would be offering the prospective
customers a unique array of pension savings and retirement income
solutions. In turn, it will help it generate more business, thereby
aiding the company to deliver solid numbers.
Following the announcement to buy Cuprum, rating agencies - A.M.
), Standard and Poor's and Fitch ratings - have taken rating action
on Principal Financial.
Standard and Poor's, though affirmed the 'BBB+' counterparty credit
ratings of Principal Financial and Principal Financial Services
Inc. (an intermediary holding company), as well as 'A+'
counterparty credit and financial strength ratings on Principal
Life Insurance Co. (PLIC), lowered the outlook to negative from
stable. The outlook downgrade accounts for higher financial
leverage, lowered fixed-charge coverage ratio, and higher capital
deficit at PLIC.
Moody's also reiterated the rating but lowered the outlook to
Fitch ratings brought the ratings of Principal Financial Group and
its insurance company subsidiaries on Rating Watch Negative, based
on the concerns of increased financial leverage.
A.M. Best Co. kept the financial strength, issuer credit and debt
ratings of Principal Financial Group unaltered. The outlook of the
ratings remains stable.
We retain our Neutral long term recommendation on Principal
Financial. The company currently carries a Zacks #3 Rank,
translating into a Hold rating in the short term.