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GE Agrees to Sell Its Bond Insurance Unit

The sale to PMI Group reflects the company's strategy of shedding slow-growth businesses.

August 05, 2003|From Reuters

General Electric Co. said Monday that it would sell its bond insurance unit to an investor group led by mortgage insurer PMI Group Inc. for about $1.9 billion, bolstering PMI's ability to provide credit analysis and risk assessment.

The transaction would allow GE's Financial Guaranty Insurance Co. to operate independently, owned in part by five different entities, including a small stake by GE.

It also would allow Walnut Creek, Calif.-based PMI to diversify its products, as PMI looks to compensate for a difficult environment for private mortgage insurance.

FGIC has been the most conservative player in the already conservative municipal bond insurance market. It insures low-risk bonds such as the ones that finance roads, bridges and tunnels. The company currently insures bonds with a combined value of $202 billion.

PMI would own 42% of FGIC after the deal closes and would control five of the company's 14 board seats. Other members of the investor group include Blackstone Group and Cypress Group, which would own 23% each; and CIVC Partners, which manages substantial private equity assets for Bank of America Corp. and would own 7%.

PMI said it had a plan to eventually gain majority control over FGIC.

Terms of the deal call for GE to receive the equivalent of about $1.88 billion in cash that includes $1.4 billion in cash from the buyout group, $225 million in borrowed equity and $260 million in the form of a pre-closing dividend. GE, based in Fairfield, Conn., would retain a 5% common equity stake in the company and continue to hold $235 million in preferred stock, bringing the deal's total enterprise value to about $2.16 billion.

The sale is part of the revamping of GE's insurance operations under Chief Executive Jeffrey Immelt, who has sought to clean up or sell insurance businesses with slow or volatile growth.

Shares of PMI rose 8 cents to $32.85. Shares of GE rose 2 cents to $28.48. Both trade on the New York Stock Exchange.

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