DealZone

from Anurag Kotoky:

Willis – Just say no to contingents

The return of contingent commissions to the insurance brokerage business has provided one company with an opening to differentiate itself – by not accepting them.

Insurance brokers are middlemen between insurance companies and insurance buyers. They’re supposed to act in the interest of the buyer, but they can receive “contingent” commissions by steering a certain amount of business to the companies.

The practice was banned five years ago after an assault led by Eliot Spitzer, riding high at the time as New York’s attorney general and the “sheriff of Wall Street.”

But now the practice has returned from the dead, and two top players – Aon and Marsh & McLennan – are taking steps to return to it.

That gives another company, Willis, an opening to differentiate itself by advertising that it refuses to sully itself with such a conflict of interest. As other companies made clear that they were moving back to accepting the payments, Willis fired off a press release blasting the practice.

DealZone Daily

British insurer Prudential is to list in Hong Kong on May 11 and announced a secondary listing in Singapore to fund its $35.5 billion takeover of rival AIA, AIG’s Asian life insurance business.  Prudential said it would publish prospectuses for each of the listings on May 5.

U.S. air carriers United Airlines and Continental are considering a nil premium all stock merger to create the world’s largest airline valued at about $6.6 billion.  US Airways earlier dropped out of merger discussions with United. Many believed United had only entered talks with US Airways to draw out Continental, arguably a better match for it.

CenturyTel is to buy Qwest Communications in another stock deal, valuing the combination of the U.S.’s third and fourth largest landline telephone companies at $10.6 billion. The deal is designed to let the new business, CenturyLink, cut costs and compete more effectively, as consumers increasingly unplug their phone lines and go mobile.

DealZone Daily

Prudential says it has appointed Rob Devey, head of the UK insurer’s British and European operations, to lead the integration with AIG’s Asian life insurance arm. Read the Reuters story here.

And in news reported by other media on Wednesday:

Morgan Stanley has told investors that its $8.8 billion real estate fund may lose nearly two-thirds of its money due to bad investments, according to the Wall Street Journal, which reviewed fund documents.

US specialty chemicals maker Lubrizol has joined a string of other bidders in talks to buy Cognis, with an offer that could value the German maker of additives for cosmetics and detergents at about $4.1 billion, the Financial Times said.

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American International Group could learn the fate of the stalled $2.2 billion sale of its Taiwan unit Nan Shan Life Insurance as early as Thursday, when Taiwan’s parliament will review a report on the deal from the top financial regulator.  Read the Reuters story here.

A clutch of private equity firms have bid up to 400 million pounds for British greetings card retailer Card Factory, sources familiar with the process told Reuters. Here is the story.

And in news reported by other media on Wednesday:

Barclays is looking to buy a retail bank in the US to extend its presence after buying Lehman Brothers, reports the Wall Street Journal. Barclays is not in talks and no deals are imminent, but has designated an internal team to assess possible targets.

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Sberbank, Russia’s biggest lender, is lining up a bid for the 21 percent stake in Turkey’s Garanti Bank that is being sold by General Electric, a source close to the deal tells Reuters. The stake in the most actively traded stock on the Istanbul bourse is worth $3.7 billion at current market prices. Read the story here.

And in news from other media on Tuesday:

Marsh & McLennan, the number two global insurance broker, has put its security consulting business Kroll up for sale for $1.3 billion, the Financial Times said.  Carlyle, Apax, BC Partners, General Electric and two trade bidders made first expressions of interest in late February, the report says.

Prudential shareholders have been given assurances they will share in the lucrative underwriting of the insurer’s record $21 billion rights issue to head of a brewing row between investors and the company, the Telegraph said, citing sources close to the company.

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American International Group was closing in on a deal to sell its foreign life insurance unit to MetLife Inc for about $15.5 billion in cash and stock, sources familiar with the matter say. MetLife is expected to pay AIG about $6.8 billion in cash and about $8.7 billion in equity, which includes convertible preferred, common shares and common equivalent securities, for the unit, American Life Insurance Co (Alico). Read the Reuters story here.   Indian conglomerate Essar Group plans to raise about $2.5 billion to $3 billion by listing its energy and power businesses on the London bourse in late April, a person familiar with the matter says. Read the Reuters story here.   In other M&A and corporate finance news on Monday:   Kraft Foods is being investigated by UK regulators on whether the company misled employees and investors in its pursuit of Cadbury, the Wall Street Journal said, citing people familiar with the matter.   Top Prudential shareholders are threatening to revolt because they were not given a role subunderwriting the insurer’s $20 billion rights issue, reports the Telegraph. Shareholders are “furious” they have not been offered a role and that the job and lucrative fees that go with it have been given to a group of 30 banks instead.

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Swiss commodity trader Glencore buys back its prized Prodeco coal operations in Colombia from mining group Xstrata. Analysts reckon the deal is worth around $2.5 billion to $2.7 billion — making it an easy decision for Glencore to exercise its option to buy as it values the mines at $4-$5 billion, a source says.

China Life Insurance Co, the world’s biggest life insurer by market value, is looking to buy a bank, its chairman says. It
would be following peers as China relaxes restrictions on banks and insurance companies investing in each other.

In other M&A and corporate finance news reported by Reuters and other media on Friday:

Noted: Will European insurers hit M&A trail?

Analysts at UBS are predicting the European insurance industry could be at the start of a new wave of mergers and acquisitions (M&A) as companies look to counter falling demand for insurance by taking over rivals to boost top-line growth and extract cost synergies.  Bank rescues have created a number of potential targets as well.

The team, led by Marc Thiele, says:

“We believe European large-cap insurers will look for M&A in Eastern Europe and Asia…In our opinion, this would be more attractive than acquiring cash-generative businesses in mature countries; while this tends to offer greater cost-savings potential, it also offers less premium growth.

“On top of the normal M&A considerations, there are a number of additional game-changing transactions possible following the decisions involving ING and RBS to exit the insurance business in agreement with the European Commission.

Noted: Financial M&A drivers for 2010

Across the different bits of financial services – such as fund management, broker-dealers, insurance, and trading systems – mergers and acquisitions fell sharply in 2009. But Freeman & Co outlines 10 drivers that should make this a busier year for dealmaking:

“1. Banks and insurance companies continue to assess whether their asset management units
are core to their business, especially those that have stand alone brands or are in non-core
markets

2. Large transformational asset management deals will diminish, but deals in the $3-30 billion
AUM range will increase from current lows

Reinventing Glass-Steagall

With Congress already debating a sweeping overhaul of financial regulation, perhaps the most enduring regulatory stricture of the Depression era is again getting an airing in Washington. The venerable Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business were repealed in 1999. Now, as the banks try to move on from the dreaded salary caps and the humiliation of TARP, lawmakers are wondering whether getting rid of Glass-Steagall was such a good idea.

Financial giants such as Goldman Sachs could be broken up under two bills introduced in Congress on Wednesday, one with the backing of former Republican presidential nominee John McCain. Both would reinstate Glass-Steagall. Passage of the Cantwell-McCain bill would force firms at the center of last year’s financial crisis — such as Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo — to spin off investment and insurance operations, according to Demos, a progressive think tank in New York. A similar measure was offered on Wednesday by six Democrats in the House of Representatives.

To be fair, many have wondered whether dumping Glass-Steagall was such a good idea. What’s odd is that the discussion about bringing it back comes as almost an afterthought to the massive regulatory reform bill now before Congress. Rather than start from scratch, it may have made more sense to try to reinstate laws that the marketplace was already familiar with, and add new bits around the edges.