Tuesday, August 17, 2010

Aegon and the European Commission

AEGON announced that the approval process with the European Commission has been concluded on favorable terms to AEG in my opinion. The premium remaining on the 2 billion EUROs in state aid received in late 2008 will be reduced to 40% from 50%. Aegon plans to repay Euro 500 million by the end of this month at a premium of 10.3% plus accrued interest of Euro 11 million. The remaining 1.5 billion will be repaid at a 150% in 2011, subject to approval by the Dutch central bank, market conditions and the progress of disposals.

Importantly, AEGON retained the right to convert the shares to common shares as of 12/1/2011, a right contained in its original agreement with its largest shareholder: Form 20-F at page 159

The Dutch government aid was funneled through AEG's largest shareholder who used the funds to buy preference shares in AEG, Pay Back Dutch Government=Buying Junior Security=Mandatory Payment Event. This agreement can be found at Exhibit 4.11. I classify those securities as Junior Securities to the hybrids. The agreements are quit clear that the securities issued in connection with the state aid are in pari passu with common shares, and the hybrids are in effect bonds senior to common stock.

When AEGON pays back the 500 million plus interest and the premium, this will trigger again the mandatory payment provision in the hybrid prospectuses. Aegon agreed to refrain from paying common stock dividends until the Dutch state is paid back. That is find with me as an owner of the hybrids AEB and AEF, as long as the stopper provision continues to be activated by the repurchases of, and payments on, other Junior Securities.

The hybrids are trading up marginally on the news in early trading. A more pronounced impact is on the common share price, up over 6% : AEG: Summary for AEGON N.V I own 50 shares of the common in my LOTTERY TICKET category.

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