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Aegon To Sell Eastern European Business For $993M; Street Sees 11% Downside

Aegon NV announced an agreement to sell its Central and Eastern European business to Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG) in a deal worth €830 million ($993 million).

Specifically, Aegon (AEG) will divest its insurance, pension and asset management business in Hungary, Poland, Romania and Turkey, as the Dutch insurer seeks to raise capital to improve its cash position. The sale proceeds are expected to increase Aegon’s financial flexibility to execute on its strategic priorities, including “deleveraging,” the insurer said. On December 10, Aegon will present an update on its strategy and financial targets.

Aegon has businesses in more than 20 countries in the Americas, Europe and Asia, with a focus on life insurance, pensions and asset management.

“This transaction will simplify Aegon’s footprint and strengthen our balance sheet”, said Lard Friese, CEO of Aegon. “We are sharpening our strategic focus and are concentrating on those countries and business lines where Aegon can create most value. We believe that our businesses will benefit greatly from the vast experience of VIG, a leading insurance group in the region.”

The €830 million proceeds from the sale translate into a multiple of 2.6 times the book value as of June 30, 2020. As a result of the deal, Aegon will book an increase in IFRS equity of €505 million of which €362 million will be recognized as a book gain based on the balance sheet position on June 30.

In 2019, the total net underlying earnings of Aegon’s businesses in Central and Eastern Europe amounted to €54 million, implying a transaction multiple of 15 times net underlying earnings. Following the transaction, the company’s solvency II ratio is estimated to improve by approximately 8 percentage points.

The transaction is expected to close in the second half of 2021, pending regulatory and antitrust approvals.

Aegon shares, which have seen some recovery, jumping 34% over the past month, are still down 20% on a year-to-date basis. Looking ahead, the average price target stands at $3.23, implying investors could be facing another 11% downside potential over the next 12 months.

Meanwhile, J.P.Morgan analyst Ashik Musaddi, last month upgraded the stock’s rating to Buy from Hold with a price target of $3.35.

Musaddi believes that AEG’s new management has an opportunity to turn the company around. The analyst suggests management should evaluate splitting the company’s US and Netherlands businesses into separately listed entities. (See AEG stock analysis on TipRanks)

The rest of the Street has a Moderate Buy analyst consensus on the stock based on 1 Buy versus 2 Holds.

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