DES MOINES, Iowa--(BUSINESS WIRE)--The Principal Financial Group®, Inc. (NYSE: PFG) announced that Principal Financial Group, S.A. de C.V., Grupo Financiero has agreed to acquire 100% of HSBC AFORE, S.A. de C.V. (HAFO) from Grupo Financiero HSBC, S.A. de C.V. for approximately US $198 million based on current exchange rates (Mexican Pesos 2,360 million). In addition, The Principal® and HSBC Bank have agreed to establish an exclusive distribution arrangement, subject to regulatory approval, for the distribution of Principal AFORE’s products through HSBC’s extensive network of more than 1,100 branches. HSBC has one of the largest banking networks in Mexico. The AFORE transaction is expected to be immediately accretive to EPS and ROE, and is expected to close by early third quarter 2011, subject to regulatory approval.
According to Larry D. Zimpleman, chairman, president and CEO of The Principal, “In our February 2011 earnings call, we said we were evaluating various alternatives for our approximately $700 million of deployable capital. Certainly these include acquisitions that are aligned with our focused strategies, are complementary to our existing businesses, and are fairly priced. This opportunity in Mexico clearly fits our criteria.”
Upon approval, HSBC AFORE will merge with the Mexican pension fund business of The Principal, making Principal AFORE one of the fastest growing pension providers in Mexico. The acquisition will increase Principal AFORE’s pension assets by $2.9 billion or 62 percent and add 1.6 million customers. The combined AFORE will become the country’s sixth largest in assets under management with more than seven percent market share and fourth largest by customers with nearly 11 percent market share.
“The HSBC AFORE business fits naturally with our international strategy, providing critical scale and expanding our growing base in key emerging markets like Mexico,” said Norman Sorensen, chairman of Principal International. “The Principal is an established retirement leader with a strong commitment to Mexico and Latin America. We have a proven track record managing and administering employee retirement plans, and have successfully integrated a number of AFORE businesses since first establishing our company presence in Mexico in 1993. The AFORE business is complementary to our mutual fund business in Mexico, and we expect that both AFORE and voluntary savings will continue to grow.”
“Since the economic recession in 2008, Principal AFORE has achieved a compounded annual growth rate of 32 percent in assets under management, reflecting Principal AFORE’s ability to meet the country’s increasing need for world-class retirement and financial services,” added Luis Valdes, president of Principal International. “Looking ahead, we expect continued growth at an even faster pace as Mexico’s middle class continues to expand.”
Greenhill & Co. LLC advised The Principal on the transaction.
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Forward looking and cautionary statements
This press release contains forward-looking statements, including, without limitation, statements as to operating earnings, net income available to common stockholders, net cash flows, realized and unrealized losses, capital and liquidity positions, sales and earnings trends, and management's beliefs, expectations, goals and opinions. The company does not undertake to update or revise these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company's annual report on Form 10-K for the year ended Dec. 31, 2010, filed by the company with the Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions that may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; continued difficult conditions in the global capital markets and the economy generally, that may materially adversely affect the company’s business and results of operations; the risk from acquiring new businesses, which could result in the impairment of goodwill and/or intangible assets recognized at the time of acquisition; impairment of other financial institutions that could adversely affect the company; investment risks which may diminish the value of the company’s invested assets and the investment returns credited to customers, which could reduce sales, revenues, assets under management and net income; requirements to post collateral or make payments related to declines in market value of specified assets may adversely affect company liquidity and expose the company to counterparty credit risk; changes in laws, regulations or accounting standards that may reduce company profitability; fluctuations in foreign currency exchange rates that could reduce company profitability; Principal Financial Group, Inc.’s primary reliance, as a holding company, on dividends from its subsidiaries to meet debt payment obligations and regulatory restrictions on the ability of subsidiaries to pay such dividends; competitive factors; volatility of financial markets; decrease in ratings; interest rate changes; inability to attract and retain sales representatives; international business risks; a pandemic, terrorist attack or other catastrophic event; and default of the company’s re-insurers.
About the Principal Financial Group
The Principal Financial Group® (The Principal ®)1 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $318.8 billion in assets under management2 and serves some 19.1 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
1 "The Principal Financial Group" and “The Principal” are
registered service marks of Principal Financial Services, Inc., a member
of the Principal Financial Group.
2 As of Dec. 31, 2010.