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LONDON (Alliance News) - Legal & General Group PLC on Thursday said it has sold its Cofunds investment platform and its Investor Portfolio Service platform to Dutch insurance agency Aegon NV, which has boosted the Solvency II surplus but generated a net loss for the company.
Legal & General shares were trading down 1.4% to 209.90 pence per share on Thursday afternoon.
The UK investment manager and life insurer said the sale of the Cofunds investment platform also includes the Investor Portfolio Service platform and the retail and commercial businesses of Cofunds, with all staff in those two units transitioning to Aegon.
Legal & General purchased the outstanding 75% of Cofunds that it did not already own back in May 2013 for a total of GBP131.0 million, implying the total value of the platform was around USD175.0 million. The sale unveiled Thursday was for a total consideration of GBP140.0 million.
In selling the pair, Legal & General's Solvency II surplus will rise by GBP125.0 million and its economic capital surplus will rise by GBP105.0 million. At June 30, the Solvency II surplus was estimated at GBP5.30 billion, the company said, though did not say what the economic capital surplus was.
"The net loss on disposal amounts to GBP65.0 million but the deal boosts the Solvency II surplus by GBP125.0 million," said Shore Capital analyst Eamonn Flanagan. "We view this deal as an excellent outcome for Legals given the IT spend we believe the group was going to have to commit to in the coming years in terms of modernising Cofunds' offering."
The deal requires regulatory approval, which will hopefully be secured by December.
Importantly, Legal & General said the sale of the platforms does not impact its relationship with Nationwide Building Society.
The insurer has worked closely with Aegon throughout 2016 and cited "mutually beneficial transactions" such as its purchase of Aegon's GBP2.90 billion back-book annuity portfolio in May and the agreement of a five-year distribution deal to provide individual annuities to Aegon pension customers in July.
"Over the last few years Legal & General Investment Management has developed a market leading international defined contribution pension platform business. Legal & General Investment Management manages GBP50.0 billion in UK and US defined contribution pension assets, and plans to expand into the defined contribution market of Asia," said Legal & General Chief Finance Officer Mark Gregory.
"Cofunds is at the point where it requires a significant upgrade in technology to exploit its leadership position in the UK platform market. We have concluded that this long term commitment is best achieved under Aegon's ownership as a specialist wealth platform provider," he added.
Shore Capital retained a Buy rating on the stock and said, in particular, Legal & General has "significant income attractions".
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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