The Travelers Companies, Inc. (NYSE:TRV) is the Dow Jones Industrial Average component which many investors manage to overlook or forget about it being a DJIA member. The insurance giant has announced an expansion into Brazil via a large stake acquisition and joint venture with a company called J. Malucelli Participacoes em Seguros e Resseguros.
Travelers will acquire 43% of the insurance company for $370 million, and Travelers has an option to acquire up to 49.9% of the company within 18 months. While J. Malucelli Participacoes em Seguros e Resseguros is probably unheard of by 99.9% of Americans, it is the market leader in the surety insurance business in Brazil. Travelers noted that its market share is larger than 30% of the local market.
In this JV, Travelers will be able to leverage its U.S. surety operations to be able to enter the Brazilian market side-by-side with one of the top companies in the local Brazilian market.
Travelers expects the deal to be “modestly accretive to Travelers’ earnings in the first year.” Having an acquisition or joint venture into a high growth market like Brazil and to have it be accretive at all in the first full year is more than a good deal at the start.
Time will tell if the company can truly capitalize off this joint venture in the manner it expects. On the surface this looks like a cheap way to expand into a rapidly growing market. Travelers has a market cap of over $25 billion, implying that its cost basis to expand into a high growth market is only about 1.5% of its total market cap. Considering Brazil’s approximate 200 million people (versus 310 million or so for the U.S.) and its high growth market, today’s move seems a real win.
Travelers closed at $55.91 on Wednesday and its 52-week trading range is $47.35 to $56.40.
JON C. OGG
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