Insurance giant Cincinnati Financial Corp. ended its 40-year relationship with Alltel Corp. last week, dumping more than 13.1 million shares in the Arkansas company due to its recent decision to split its wireless and wireline operations, according to an Arkansas News Bureau story.
Cincinnati Financial is a publicly traded company that sells insurance products through independent agents in 32 states. When all was said and done the company had sold 13,175,164 shares of Alltel common stock by Jan. 14. At the closing price last week of $59.23, CFC’s stake in Alltel would have been worth $780 million, representing a 3.4 percent ownership in the Arkansas-based Fortune 500 company.
Cincinnati Financial Chairman and CEO John J. Schiff Jr. said that although the relationship had been an excellent one for the company for over 40 years, it was clear that Alltel has plans to pursue a direction that is not expected to provide growth in dividends for CFC within their investment parameters.
The Ohio insurance company also holds stakes in Fifth Third Bancorp, Procter & Gamble and ExxonMobil, whose fourth-quarter earnings of $10.71 billion set a U.S. record for quarterly profits on Jan. 30.
In 2004, CFC had a pre-tax investment income that rose 5.7 percent, reaching a new record of $492 million. Investment income has grown at a 6.5 percent compound annual growth rate in the prior ten years.
In December, Alltel announced that it would sell its wireline unit for $9.1 billion. The company said it had made a decision to merge with Texas-based Valor Communications Group.
The split of the company’s two main businesses will make Alltel a pure-play rural wireless giant with nearly 11 million customers in 34 states and revenue exceeding $10 billion, according to the Arkansas News Bureau.
Under that payout schedule, Cincinnati Financial’s quarterly dividend would have amounted to more than $5 million. In fiscal 2005, the Ohio insurer received nearly $20 million in dividend income from its stake in Alltel.
Company officials said the insurance giant’s investment department will use the after-tax proceeds from the $780 million Alltel stock sale to buy shares in other companies that meet the CFC’s investment mission.
Source: Arkansas News Bureau, 2003 -2006
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