Primerica’s Initial Public Offering Jumps 30 Percent
Prior to the holiday weekend, shares of Primerica Incorporated (PRI.N) jumped to levels as high as 30 percent above its initial public offering price on Thursday. The heightened interest in Primerica comes from optimism that the company is in a prime position to benefit from the rebounding economy.
The life insurance company is a spinoff of the big banking company, Citigroup Incorporated. Citigroup, which received bailout funding, reported that it had raised approximately $320.4 million from 21.4 million shares that were priced at $15 each. The unexpected interest in Primerica beat out Citi’s expectations that it would sell around 18 million shares between $12 and $14 each. The news brought delight to Citigroup, which will keep all of the proceeds from Primerica’s IPO, causing Citigroup’s value to increase by 2.5 percent to $4.15 per share putting the company among the top gainers in the big bank industry.
By Thursday afternoon, Primerica’s shares had reached $19.94 on the New York Stock Exchange. As a result of the company’s stellar debut, underwriters increased the offering size by a substantial 19 percent to a total of 21.36 million shares. Still, the IPO was offered at a price-to-book value discount to competitors, Ameriprise Financial, Prudential Financial and MetLife.
Primerica relies heavily on a door-to-door sales force that currently employs more than 100,000. The company’s life insurance plans are marketed towards lower to middle-income families. In an interview with CNBC, company executives stated that the company’s growth will rely heavily on its sales force since it would not be able to invest its IPO revenue back into itself.
“We’re going to be a smaller, faster-growing company going forward. When we grow the sales force, the underlying sales grow.”
Once the IPO has come and gone, Citibank will have a 43 percent interest in the company. Insiders from the big bank have stated that the business move is an attempt to divest assets that are not related to the company’s core banking operations. Citi made efforts to sell Primerica in 2009, but it could not attract any buyers that were willing to pay enough. Since 2007, Citi has taken close to $1 billion in dividends from Primerica and before the IPO process is complete it will obtain another $622 million. Primerica and its other underwriters could reduce Citi’s stake to 39 percent if they buy their maximum overallotment of 3.2 million shares.
Primerica ‘s life insurance segment was established in 1977 and was bought by Sandy Weill’s Commercial Credit in the 1980’s to form what is now Citigroup.