Citigroup Inc. and State Street Corporation early this morning announced that they have entered into a definitive agreement to sell CitiStreet, a benefits servicing business, to ING Group in an all-cash transaction valued at $900 million (EUR 578 million).
CitiStreet is a joint venture formed by the companies from which it drew its name in 2000, owned 50% each by Citi and State Street. According to a press release, the acquisition is expected to close, pending customary closing conditions, by the end of the third quarter of this year.
The rationale for the sale was one commonly cited by firms that exit the recordkeeping business – a mismatch with the core focus of the parent company (see Hartford Scores a Hat Trick , Recordkeeping Survey 2007: Under Currents ). “CitiStreet is an industry leader, but retirement plan record keeping and administrative services are not strategic priorities for us,” said Charles D. Johnston, President of Citi Global Wealth Management, in the announcement.
The transation also brings together recordkeeping operations that have traditionally focused on opposite ends of the market. While CitiStreet’s impact has been most evident among large plans, more than 90% of ING’s defined contribution business has been in the micro segment of the market (see PLANSPONSOR’s 2007 Recordkeeping Survey ). In fact, ING was ranked second by number of plans in that survey (see Top 10 Recordkeepers – Number of Plans ).
CitiStreet provides a range of recordkeeping and administrative services to more than 16,000 plans and 12 million participants, and is one of the nation's largest recordkeepers. It was the second largest by participants in PLANSPONSOR's 2007 Recordkeeping Survey (see Top 10 Recordkeepers ), and fourth in terms of assets under administration. Headquartered in Quincy, Massachusetts, CitiStreet has more than $262 billion in assets under administration as of March 31, 2008 and approximately 3,700 employees.
"In the eight years since its launch, CitiStreet has had steady growth and become a leading benefits servicing provider," said Ronald E. Logue, Chairman and Chief Executive Officer, State Street Corporation. "This transaction recognizes the strong business we built while enabling us to focus resources on businesses that are more closely aligned with our long-term strategy."
However, even if recordkeeping was not a strategic priority, Johnston acknowledged the continued commitment of Citi's adviser business by noting, "Smith Barney remains committed to serving corporate and business clients with retirement plans and other institutional offerings and we will work closely with ING and State Street to ensure an orderly transition for clients and employees," he said in the announcement.
On the other side of the transaction, Michel Tilmant, Chairman of the Executive Board of ING Group said, "This acquisition is consistent with ING's focused strategy to support the strong organic growth of the Group with suitable add-on acquisitions aligned with its core banking, investments, life insurance and retirement services growth businesses."
In a press release , Kathleen Murphy, CEO, ING US Wealth Management said, "This acquisition brings together two customer-centric cultures that are committed to making retirement saving and other benefits delivery easier for plan sponsors and plan participants. With ING's excellence and leadership in the education, small employer, government and health care markets, and CitiStreet's excellence and leadership across all employer markets, we are creating a new value proposition that will span the full spectrum of the defined contribution and benefits servicing marketplace. Furthermore, in a converging defined contribution environment, ING's and CitiStreet's key stakeholders will be well-served by a leading retirement savings provider that is committed to addressing the evolving needs of investors."
According to the announcement, the acquisition will provide significant operational synergies for ING and is expected to be EPS (earnings per share) accretive by 2010, excluding merger-related expenses and the amortization of customer-based intangible assets.
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