The net underlying earnings of Aegon's Canadian operations were CAD 26 million over the trailing four quarters ending June 2014, while its shareholders' equity excluding revaluation reserves on an IFRS basis amounted to CAD 1.8 billion at the end of June 2014. As a result, the sale price represents a multiple of 23 times net underlying earnings. The transaction is expected to result in a book loss of approximately CAD 1.2 billion (EUR 0.8 billion).
"We continually review the performance of our businesses to ensure that they support our ambition to become a leader in our chosen markets", said Alex Wynaendts, CEO of Aegon. "We have concluded that our Canadian life insurance business does not support that goal. The decision to divest these activities will lead to an improvement in the group's return on equity of 40 basis points. At the same time, we believe this is a good outcome for our customers and employees, as the company will continue to offer competitive choices for the middle market in Canada."
Aegon will earmark the proceeds of this transaction to further reduce outstanding debt through the redemption of the USD 500 million 4.625% senior bond, due December 2015. This is in addition to the already planned redemption of the EUR 500 million 4.125% senior bond, due December 2014. The combination of the divestment and the non-refinancing of the bond will improve Aegon's return on equity by 40 basis points, while reducing net underlying earnings by less than 1%. It will also keep Aegon's leverage ratio unchanged on a pro forma basis, while its fixed charge cover ratio will improve by 0.6 times.
The parties anticipate that the transaction will close in the first quarter of 2015, subject to regulatory approval.