NEW YORK (AP) — Primerica Inc., a unit of Citigroup Inc. powered by an army of agents selling financial services to friends and neighbors, on Thursday, had one of the best-performing initial public offerings so far this year as investors were comforted by the notoriety of its parent and were drawn to a low offering price.
The Primerica offering comes as analysts expect technology and financial companies to lead an IPO market comeback. Five newly public companies have posted double-digit gains on their first day of trading in the past two weeks.
Since late last year, IPOs have stumbled as competition between investment bankers inflated offering prices. Many IPOs that have made it to market this year have accepted lower prices for their shares due to a volatile stock market and worries about companies' debt loads, weak operating histories and slow growth.
Citigroup kept Primerica's price low because it was determined to divest the unit, analysts said. As an increasing number of companies offer shares at attractive prices, demand for IPO shares is likely to grow.
"Right now, these companies are leaving money on the table, and that's like honey to bees," said Francis Gaskins of IPOdesktop.
Shares of Primerica surged $4.65, or 31 percent, to close at $19.65 after the deal raised $320.4 million by selling 21.4 million shares for $15 apiece to initial investors. The stock, which reached $20.20 during the session, trades under the ticker "PRI."
While the household names and low price were big enticements, investors were also encouraged by an unusual move by private equity firm Warburg Pincus, which agreed to buy a 23 percent to 33 percent stake in the company at the IPO price.
"Private equity firms generally want to pay dimes on the dollar, but obviously Warburg considers this a gem," said IPO market tracker Scott Sweet of IPOBoutique.
"This was the first time I've seen a private equity firm make a big commitment at the public IPO price," said Gaskins. "Normally, they get sweetheart deals and public be damned. All investors needed to know for this deal was that they were paying the same as Warburg Pincus."
Primerica, which sells life insurance and other financial products through a network of about 100,000 agents, was deemed a noncore asset by Citi when the bank decided to restructure during the credit crisis.
"It's a very agent-driven model," Alois Pirker, a research director at Aite Group, said of Primerica. "It's kind of a house-to-house insurance sales" model that does not fit in with Citigroup's business strategy.
The spin off of Primerica is another significant step in Citi's unraveling of the one-stop financial services marketplace model it tried to create in the late 1990s.
The strong demand for Primerica shares bodes well for Citi to make an even bigger profit than it did from the initial public offering. Citi held onto some shares of Primerica to sell later.
Primerica has undergone major changes over the past 30 years, transforming from a manufacturing company known as American Can Co. into a financial services firm that was eventually acquired by Citigroup through a series of mergers and acquisitions.
American Can morphed into a financial services firm in 1982 and eventually changed its name to Primerica in 1987 after selling its container operations.
Primerica was a stand-alone, publicly traded company until it merged with the insurance company Travelers. Citicorp merged with Travelers in 1998 to create Citigroup. Travelers was eventually spun back off in 2002 as a separate insurance company, but Citi held onto Primerica and some of the other units that it acquired as part of the Travelers deal.
Citi was one of the hardest hit banks by the recession and credit crisis. It has been streamlining operations and selling assets to build capital and return to consistent profitability.
Citi received $45 billion in government aid as part of the government's $700 billion Troubled Asset Relief Program. It repaid $20 billion, while the government still holds $25 billion in Citigroup stock. The government plans to sell those shares throughout the year.
While the financial impact for Citigroup might be small, Pirker said the move shows investors that Citi continues to successfully follow through on its restructuring plans. That's especially important now because it needs to draw investors to buy up the shares the government is selling this year, Pirker said.
The Primerica spin-off follows other big divestitures by Citigroup, including a sale of the majority stake of its Smith Barney brokerage unit to Morgan Stanley.
Citigroup shares rose 13 cents, or 3.2 percent, to close Thursday $4.18.