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In order to widen its presence in the emerging marketplace, Principal Financial Group Inc. (PFG - Analyst Report) has initiated a bid to acquire AFP Cuprum S.A. (Cuprum) for $1.39 billion. Chile-based AFP Cuprum is a leading pension manager with about $32.7 billion of assets under management (AUM).
In October 2012, Principal Financial announced its intention to acquire AFP Cuprum. Empresas Penta S.A. and Inversiones Banpenta Limitada, which have a 63% stake in Cuprum, are thereby required to vend their shares. The bid started on December 28, 2012 and will end on January 28, 2013. The Zacks Consensus Estimate for 2013 is currently pegged at $3.22 per share, up 23% year over year.
According to sources, Principal Financial will pay 36,698.44 pesos for each of Cuprum's 17.9963 million shares.
Principal has been increasing its focus on fee-based business that allows the company to return more earnings to shareholders. The Cuprum acquisition will mark 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 a competitive advantage. To this point in China and India, PFG has asset management and mutual funds businesses.
Cuprum has a dominant position in the Chilean pension market with the highest increase in market share among high value customers. It is noteworthy that an increasing middle income group population, steady economic growth and a sturdy improvement in the voluntary pension products have allowed the Chilean pension market to consistently grow at double-digit rates. This acquisition will strengthen the company’s presence in Latin America as a leading pension and retirement services provider.
Principal believes that it would be offering the prospective customers a unique array of pension savings and retirement income solutions. In turn, it will help generate more business, thereby aiding the company deliver solid numbers.
Principal Financial’s third-quarter earnings significantly lagged the expectation and the year-ago numbers owing to loss at U.S. Insurance Solution. Top line fared well as an increase in premiums and other considerations, and fees and other revenues offset lower net investment income. The Zacks Consensus Estimate for the fourth quarter is 75 cents, up 5.3% year over year.
Principal Financial carries a Zacks #3 Rank that translates into a short term ‘Hold’ rating. Given the optimism over the present transaction, we expect analysts to raise their estimates, providing an upside to on its Zacks Rank. We also have a long-term neutral recommendation on the company. Lincoln National Corp. (LNC - Analyst Report), which closely competes with Principal Financial, carries a Zacks #2 Rank implying a short term ‘Buy’ rating.
(We are reissuing this article to correct an error. The original version, published Jan 2, 2013, should no longer be relied upon.)