Aegon is buying Merrill Lynch’s life insurance businesses as part of a new strategic relationship between the firms.

As part of this relationship, an Aegon company has signed an agreement to acquire Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York for US$1.3 billion in cash. The purchase price includes excess surplus of approximately US$425 million. The transaction is expected to close before the end of the fourth quarter of 2007, subject to customary regulatory approvals and closing conditions.

Merrill Lynch will continue to serve the insurance needs of its clients through its core distribution and advisory capabilities. It will also continue to offer its flagship Merrill Lynch Investor Choice Annuity product through its financial advisor network. Products will be issued by the companies Aegon is acquiring.

Both companies say they anticipate substantial benefits for clients arising from this partnership including increased breadth of product offerings and enhancements to existing products.

Under the deal, Aegon’s Transamerica companies will provide support to the Merrill Lynch financial advisor network. This acquisition is in line with Transamerica’s strategy to develop alliances with strong distribution partners. This new relationship will place Transamerica in a position of strength in the sales of variable annuities within the wirehouse distribution channel.

“By working with a world-class company like Transamerica, we will be able to focus on insurance product distribution and address the insurance, investment and retirement needs of our clients more broadly,” said Robert McCann, president of Merrill Lynch’s Global Private Client Group, in a news release. “Not only will our clients benefit from Transamerica’s scale and risk management expertise, but this strategic relationship will also allow us to jointly develop innovative insurance and investment products as well as pursue new business and distribution opportunities.”

“This acquisition provides the framework for a strong strategic relationship with Merrill Lynch, creating a significant opportunity to grow the sales of the Merrill Lynch Investor Choice Variable Annuity while jointly building and branding new and innovative products for our clients,” said Pat Baird, president and CEO of Aegon USA, Inc.

Aegon expects the acquisition to have a marginally positive effect on earnings per share. It will finance the transaction using existing excess capital. As a result, this acquisition will not impact Aegon’s ability to execute its recently announced 1 billion euro share repurchase program.

Merrill Lynch expects to record a significant gain on sale during the fourth quarter of 2007 and anticipates the transaction to be slightly accretive to earnings per share and to have a positive effect on return on equity in 2008 after redeployment of proceeds.

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By James Langton

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