One of the most important news this week is Citigroup sold its insurance business, Travelers Life & Annuity, to MetLife, the largest provider of life insurance for individuals in North America based on sales for US$11.5 billion.
It is important not because the companies are both big, but also because the former merge between Travelers and Citigroup, both forming Citigroup in 1998, is so affected that a law was created to allow banks and insures to merge in the next year.
According to the report on New York Times on April 4th, 1997, Wall Street Traders were excited on the merging news, which helped boosting Citicorp stake rise about one fourth to US$180.50 and Traverlers rise one sixth to $73.
Then the two executives decided to merge the two companies into Citigroup. There is no money exchanging from hands, only share exchanges for the shareholders. The Citicorp shareholders will get 2.5 shares of the new comany for each of the holding shares. The Traverlers shareholders will remain equal certificates.
Suppose I was the shareholder who bought the Citicorp share in cash on the day the merging news published and kept the later-Citigroup share till the last day of January 2005, I would lose 57.875 US dollars for each of my original share, almost one third of the original price.
Suppose I was the shareholder of Traverlers who bought the original share in cash and keep it for the time of seven years, I would lose 23.95 US dollars for each share, also one third of the original price.
Unfortunately, I haven't seen any media including Reuters and Bloomberg comparing the wide range of the share price.
Wallen Buffet told us to invest in the good company for long term profit. But it is not true in the Citigroup case, though it is still a respected company in its field. Unfortunately, shareholders will probably not get additional dividend, though Citigroup will get almost around US$10 billion dollars in cash in the deal. The company said that it would only consider to boost the dividend as one choice among the total three ones, while the two other are reinvesting in more profitable businesses and buying back stocks(Oh, I have already lost one third).