Citigroup Spins Off Primerica Inc.
Not long ago, the banking giant Citigroup included not only banking but also insurance, among other interests. Following the recent financial crisis, Citigroup CEO, Vikram Pandit, began to dispose of some of these holdings. He wanted to slim the company down to its original core banking business, focusing on large institutions and wealthy individuals.
Primerica Inc. was one of those holdings. Based in Duluth, Georgia, Primerica sells life insurance, mutual funds, and other financial products door to door. Its middle class clients earn from $30,000 to $100,000 a year. The company never fit well with the rest of Citigroup, and its 100,000 fiercely independent salespeople liked it that way. As the financial crisis worsened, some of them called for cutting ties with the parent company. Citigroup tried to sell Primerica but could not find a buyer willing to pay the asking price. So Citigroup announced that it would spin off Primerica instead. Primerica would issue an initial public offering (IPO), selling shares of stock for the first time. Primerica planned to sell 18 million shares at $12 to $14 a share. Under the terms of the IPO, Citigroup would take all the profits and keep Primerica existing accounts. Primerica would emerge smaller but would keep any new policies. John Addison and Rick Williams, the co CEOs of Primerica, said, We going to be a smaller, faster growing company going forward.”
The IPO exceeded expectations. Primerica sold more than 21 million shares at almost $20 each. Addison and Williams feel that the company focus has contributed to its success. No one else has our business model,” Williams declared. No one else focuses on the middle income, middle market like we do.” Analysts took the IPO success as a sign that both the life insurance industry and the market were recovering from the recession. Questions for Critical Thinking
1. Visit Citibank and Primerica Web sites. Why do you think these two companies did not mesh well together?
2. Although Citibank failed to find a buyer for Primerica, the IPO was very successful. Why do you think this was the case?