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MetLife's (MET) Board Okays Brighthouse Spin-Off, Stock Up
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MetLife, Inc.’s (MET - Free Report) board of directors has given a green signal to the spin-off of its U.S. life insurance unit named Brighthouse Financial Inc. Also, all necessary state insurance regulatory approvals have been received.
Under the spin-off, each shareholder of MetLife holding 11 shares (as of the close of business on the Jul 19 record date) will receive one share of BrightHouse Financial.
Share Price Movement
The news pushed MetLife shares up 0.95% in the last trading session.
Since last October, when the company initially filed the unit’s spin-off with the Securities Exchange Commission, its shares have added 19.7%. This is very close to the Insurance - Multi line industry’s gain of 19.2%.
Behind the Spin-off
This strategic business restructuring by MetLife was primarily aimed at detaching itself from the business that posed significant earnings and capital risk.
The unit which sold capital intensive and volatile retail product lines, such as variable annuities with guaranteed living benefits and universal life with secondary guarantees, exposed MetLife to severe earnings volatility.
Also, the nature of these products required MetLife to maintain a huge capital reserve at the unit that placed it at a significant competitive disadvantage. Since the company already had to abide by stringent capital regulation because of its SIFI status, a separation of this unit was a means to relieve itself of the regulation.
The company was evaluating all possible ways of separating itself from the unit such as sale, an IPO or a spin-off. Given the current economic environment, the company felt that a spin-off would be a better option to expedite the process of separation than an IPO or a sale.
Benefits of Spin-off
Apart from seeking capital relief through this spin-off, the company also wants to detach itself from its non-core and riskier operation. It would rather focus on growing its group business in the U.S., as well as its international operations.
As a separate company, Brighthouse Financial will be a major U.S. life insurance and annuity company. It will sell a simplified set of accumulation and protection products, through a diverse network of independent distributors.
MetLife sans Brighthouse Financial will continue to be a niche provider of employee benefits in the U.S. market, as well as a leading global insurer. The company will continue to hold leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East.
Divesting non-core and unprofitable units is one of the most sought after ways of business restructuring aimed at protecting capital and profitability. Another big player in the industry American International Group Inc. (AIG - Free Report) has divested a number of its units for the past many years to trim its mammoth operations spread across the globe to focus on core and profitable business.
Cigna beat estimates in three of the last four quarters, with an average positive surprise of 1.35%.
Assurant beat estimates in three of the last four quarters, with an average positive surprise of 6.82%.
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MetLife's (MET) Board Okays Brighthouse Spin-Off, Stock Up
5 Trades Could Profit "Big-League" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>