American Express has revealed plans to pursue a spin-off to shareholders of its American Express Financial Advisors unit. The transaction is expected to be completed in the third quarter of 2005, subject to certain conditions. The plans have met with market approval as shares in the company rose by 3.4% on the news.
Shareholders would receive 100% of the common shares of American Express Financial Corporation, through which the financial advisors business is conducted.
This spin-off will create two distinct businesses and allow them to capitalize on their respective growth opportunities, said Kenneth Chenault, chairman and CEO of American Express. Both businesses are generating positive momentum. They have robust competitive advantages and the progress they have made in recent years will be accelerated by allowing them to now pursue independent strategies.
American Express Financial Advisors (AEFA) is a significant player in financial planning and advice services, asset management, insurance, annuities and related businesses. It generated revenues of approximately $7 billion and net income of around $700 million in 2004.
In making its decision, American Express believes that with direct access to capital markets, AEFA will have greater flexibility and resources to grow its business and capitalize on investor interest in large, successful financial services companies.
After the split, the two companies will be independent, have separate public ownership, boards of directors and management. They will enter into exclusive marketing affiliations that will allow AEFA to continue to use the American Express name for a transition period following completion of the spin-off.
Both companies will also continue an exclusive marketing affiliation for a transitional period that entails certain co-branded programs, including working arrangements with partners such as Delta Air Lines and Costco and AEFA’s Gold and Platinum Financial Services offerings.
James Cracchiolo, chairman and CEO of American Express Financial Advisors and group president of Global Financial Services, said: We are excited about the opportunity to establish AEFA as an independent financial services company. We intend to build upon a unique and proven model with the objective of being an industry leader.
American Express’ decision is the latest in a now growing trend of large financial organizations breaking up their operations to concentrate of core sectors. Earlier this week Citigroup made a similar strategic decision when it sold off its insurance arm.