THE HAGUE The Dutch insurance company Aegon NV has agreed to buy the direct marketing insurance unit of J.C. Penney Co. for $1.3 billion in cash.
The acquisition will make Aegon the largest direct seller of life and supplemental health insurance products in the U.S., based on 1999 premium income, said Donald Shepard, who runs Aegons U.S. unit, in a statement.
The J.C. Penney unit sells life, accident and health insurance products directly to customers holding credit cards sponsored by banks, oil companies and retailers, including J.C. Penney department stores.
As part of the agreement, J.C. Penney and Aegon, through its Commonwealth General unit, will form a 15-year marketing alliance to offer financial services to J.C. Penney customers, the companies said in a statement. The joint venture is expected to generate payments to J.C. Penney of as much as $300 million.
J.C. Penney, the countrys second-largest department store chain, has been trying to get out of an earnings slump that has caused its shares to fall 78% since mid-1998. In May the Plano, Tex., company announced that it was considering selling the insurance unit, which had revenue of $1.1 billion in 1999 and has about 12 million clients in North America.
Aegon, the second-largest Dutch insurer, has been using acquisitions to expand in the United States, where it generates about two-thirds of its pretax profit. It spent $2.6 billion to purchase Providian Corp.s insurance unit in 1997 and $10.9 billion to acquire Transamerica Corp. in 1999.
Buying the J.C. Penney business "will add to earnings in an area where its business is already growing, "said Tom Bennett, an analyst at BNP Paribas, who recommends investors purchase Aegon shares. "The negative aspect is Aegon is increasing its exposure to a weakening U.S. economy."