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PMI-Led Investor Group Acquires GE Unit
NEW YORK (Reuters) - An investor group led by mortgage insurer PMI Group Inc. (NYSE:PMI - News) said on Monday it has agreed to purchase General Electric Co.'s (NYSE:GE - News) bond insurance unit for about $1.675 billion, bolstering PMI's ability to provide credit analysis and risk assessment.

The long-awaited transaction, under had been discussion for several months, will allow GE's Financial Guaranty Insurance Co. to operate as an independent company owned in part by five different entities, including GE.

It also will allow Walnut Creek, California-based PMI to diversify its product base, a key focus as PMI looks to compensate for a difficult environment for private mortgage insurance.

"We believe our investment in FGIC represents a solid growth opportunity and a diversification that strengthens the overall risk profile of the PMI Group," said Roger Haughton, PMI's chairman and chief executive, in a statement.

FGIC insures mostly municipal general obligation bonds or infrastructure bonds in sectors more conservative than those included in other triple-A rated bond insurers' book of businesses. The company currently has about $202 billion on insured par outstanding.

PMI will own 42 percent of FGIC after the deal is closed and control five of the company's 14 board members. Other members of the investor group include The Blackstone Group (News - Websites), Cypress Group, which will each own 23 percent, and CIVC Partners, the private equity arm of Bank of America Corp. (NYSE:BAC - News), which will own 7 percent.

GE will maintain a 5 percent common equity stake in the company, and continue to hold $235 million in preferred stock.

Terms of the transaction call for the investor group to pay $1.675 billion in cash, including a pre-closing dividend of $260 million. The group will also assume $225 million in senior debt, giving the deal an enterprise value of about $2.16 billion.

Frank Binova, the former vice chairman and chief financial officer of bond insurance company Ambac Financial Group, will serve as chief executive off FGIC after the deal closes, expected sometime during the fourth quarter.

PMI expects to generate net income of 20 cents to 30 cents per share from the transaction next year, assuming it closes by year-end. The company also expects to issue about $207 million of equity-linked units and $100 million worth of common stock to help finance the transaction.

Shares of PMI fell 72 cents, or 2.2 percent, to $32.05 in morning trade on the New York Stock Exchange (News - Websites). Shares of GE shed 44 cents, or 1.6 percent, to $28.02.