Principal regarded as buyer for Cigna pensions

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Principal regarded as buyer for Cigna pensions

By S.P. DINNEN, Des Moines Register

August 3, 2003

The Principal Financial Group Inc. was keeping mum Wednesday on reports that the Des Moines company could be a potential bidder for another insurance company's pension-administration business.

Cigna Corp., the third-biggest U.S. health insurer, recently hired Goldman Sachs Group Inc. to arrange the sale of its pension business - a deal that experts said could bring as much as $2 billion. Cigna said Wednesday it has not decided whether to sell the pension business or spin it off.

As word of the potential sale spread, industry insiders identified a few possible buyers. One is Principal, which has a huge position in the retirement plan administration business.

Principal declined to comment on whether it would be interested in the Cigna pension business.

"Our policy is to avoid comment on rumors and speculation," Principal spokesman Jeff Rader said.

Doug Meyer, a securities analyst with Fitch & Co., said the Cigna pension division "would make a nice fit with what Principal already has."

"It gives them more scale, more critical mass," Meyer said.

As of March 31, the value of the pensions that Principal manages was $65.4 billion. Cigna had $54 billion in pension assets under management.

Seth Glasser, an analyst with Barclays Capital, said Principal has stated a desire to focus on building its retirement business in North America and South America. He said any move by Principal to acquire Cigna's pension assets "is very consistent."

"They want to build the ratio of earnings that comes from retirement (products) - especially group retirement," said Glasser.

Principal is the nation's largest administrator of 401(k) workplace retirement plans. The company also handles more than 3,000 defined benefit pension plans, and Cigna has positions in both of those segments.

Meyer, the Fitch analyst, said Cigna's retirement business earns $200 million to $225 million yearly. Both he and Glasser said Principal could easily afford the rumored $2 billion price tag, although it probably would have to borrow money or issue shares of Principal stock.

The company also could draw on $967 million in cash and cash equivalents that it had on hand at the end of the second quarter.

Other potential bidders include Lincoln National Corp., Manulife Financial Corp., Putnam Investments and Fidelity Investments, industry insiders said. Representatives for those companies, as well as spokesmen at Cigna, declined to comment.